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MGM HOLDINGS INC.
For the quarter ended June 30, 2019
Delaware (State or other jurisdiction of incorporation or organization)
245 North Beverly Drive
Beverly Hills, California 90210 (Address of corporate headquarters)
Telephone number, including area code: (310) 449-3000
1
Table of Contents
Company Background and Business Overview 3
Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and
December 31, 2018 10
Condensed Consolidated Statements of Income for the three and six month periods ended
June 30, 2019 (unaudited) and 2018 (unaudited) 11
Condensed Consolidated Statements of Comprehensive Income for the three and six month
periods ended June 30, 2019 (unaudited) and 2018 (unaudited) 12
Condensed Consolidated Statement of Stockholders’ Equity for the six months ended
June 30, 2019 (unaudited) 13
Condensed Consolidated Statements of Cash Flows for the six month periods ended
June 30, 2019 (unaudited) and 2018 (unaudited) 14
Notes to Unaudited Condensed Consolidated Financial Statements 15
Management’s Discussion & Analysis of Financial Condition and Results of Operations 36
2
Forward-Looking Statements and Risk Factors
This report contains forward-looking statements. In some cases you can identify these statements by
forward-looking words such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “future,”
“goal,” “intends,” “may,” “objective,” “plans,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and
variations of these words and similar expressions. These forward-looking statements include, but are not limited to,
statements concerning the following:
our ability to predict the popularity of our film and television content, or predict consumer tastes;
our ability to maintain and renew affiliation agreements and content licensing agreements for EPIX
and our other wholly-owned and joint venture channels;
our ability to realize the anticipated benefit from acquisitions, business combinations, joint ventures
and other similar transactions. No assurance can be given that such transactions will be successfully
integrated by us to the extent required, or that we will realize potential revenue enhancements, cost
savings, operational efficiencies or other benefits. Additionally, there can be no assurance that such
transactions will not adversely affect our results of operations, cash flows or financial condition, and
any such transaction could result in an impairment of goodwill and/or other intangible assets;
our ability to exploit emerging and evolving technologies, including alternative forms of content and
delivery, and the storage of content;
our ability to finance and produce film and television content, and to do so in accordance with the
anticipated schedule or budget, or with the creative talent anticipated to be included in the projects;
increased costs for producing and marketing feature films and television content;
our ability to acquire film and television content on favorable terms;
our ability to exploit our library of film and television content;
our ability to integrate acquired businesses and operate joint ventures;
our financial position, sources of revenue and results of operations;
our liquidity, access to capital and capital expenditures;
our ability to attract, retain and successfully replace critical senior management personnel and other
key employees;
uncertainty from the expected discontinuance of LIBOR and transition to another interest rate
benchmark;
inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, or other rates or
prices; and
trends in the entertainment industry.
You should not rely upon forward-looking statements as predictions of future events. Although we believe
that the expectations reflected in the forward-looking statements are reasonable, such forward-looking statements
are subject to risks and uncertainties, and we cannot assure you that the future results, levels of activity, performance
or events and circumstances reflected in the forward-looking statements will be achieved or occur.
You should read this report with the understanding that our actual future results, levels of activity,
performance and events and circumstances may be materially different from what we expect. We do not intend, and
undertake no obligation, to update any forward-looking information to reflect actual results or future events or
circumstances, except as required by law. Moreover, we operate in a very competitive and changing environment.
New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the
impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual
future results, levels of activity, performance and events and circumstances to differ materially and adversely from
those anticipated or implied in the forward-looking statements.
3
Company Background and Business Overview
Overview
MGM Holdings Inc. (“MGM Holdings,” “MGM,” the “Company,” “we,” “us,” or “our”) is a leading
entertainment company focused on the production and global distribution of film and television content across all
platforms. We have one of the most well-known brands in the industry with globally recognized film franchises and
television content, a broad collection of valuable intellectual property and commercially successful and critically
acclaimed content.
We have historically generated revenue from the exploitation of our content through traditional distribution
platforms, including theatrical, home entertainment and television, with an increasing contribution from digital
distribution platforms in existing and emerging markets. We also generate revenue from the licensing of our content
and intellectual property rights for use in consumer products and interactive games, as well as various other
licensing activities. Our operations include the development, production and financing of feature films and
television content and the worldwide distribution of entertainment content primarily through television and digital
distribution.
In May 2017, we acquired EPIX Entertainment LLC which operates EPIX, a premium pay television
network delivering a lineup of original programming and blockbuster movies. EPIX is available through cable,
satellite, telecommunications and streaming TV providers as a linear television, video-on-demand, 'TV Everywhere'
and over-the-top (OTT) service and is currently available in the United States ("U.S.") and Puerto Rico. EPIX also
licenses content to subscription video-on-demand (“SVOD”) operators. In addition, we currently own or hold
interests in MGM-branded channels in the U.S., as well as interests in pay television networks in the U.S. and
Brazil.
We control one of the world’s deepest libraries of premium film and television content. Our film content
library includes the James Bond, The Hobbit, Rocky/Creed, RoboCop, Pink Panther and 21 Jump Street franchises,
as well as The Silence of the Lambs, The Magnificent Seven, and Four Weddings and a Funeral. Our television
content library includes Stargate SG-1, which was one of the longest running science fiction series in U.S. television
history, Stargate Atlantis, Stargate Universe, Vikings, Fargo, The Handmaid’s Tale, Get Shorty, Condor, Fame,
American Gladiators, Teen Wolf and In the Heat of the Night, as well as our rights to or income from prominent
unscripted shows including The Voice, Survivor, Shark Tank, Live PD, Eco-Challenge, Are You Smarter Than a 5th
Grader, Beat Shazam, The Real Housewives of Beverly Hills, The Hills, and other titles.
Business
Production of film and television content
Film Content. We are involved in the development, production and acquisition of film content, and for
certain films, we participate with third parties through co-production arrangements to produce, co-finance and
distribute our content, as well as content developed by our partners. We have several feature films in various stages
of development, production and post-production, including, but not limited to, the 25th installment of the James
Bond franchise, The Addams Family, the Aretha Franklin biopic Respect, Bad Trip, Bill and Ted Face the Music,
Candyman, Creed III, Gretel and Hansel, I Am Pilgrim, Legally Blonde 3, RoboCop, Sesame Street, Thomas Crown
Affair, Tomb Raider 2 and Valley Girl.
4
Television Content. We have several successful scripted television series and unscripted television shows
that we are producing and/or distributing, as well as a deep pipeline of new scripted and unscripted content.
Scripted series. We control distribution rights on a worldwide basis (excluding Canada) to the award-
winning television series Vikings. The first half of the 20-episode sixth season of Vikings is anticipated to premiere
on History in the second half of 2019. The Handmaid’s Tale continues to be a huge success, having received an
incredible eleven Emmy Awards, including Outstanding Drama Series, two Golden Globe awards, including Best
Television Series Drama, an additional eleven Emmy nominations in 2019, plus the Peabody Award, a BAFTA
award and many other distinguished awards. Season 3 of The Handmaid’s Tale premiered on Hulu in June 2019
and the series has already been renewed for a fourth season. Fargo has completed three seasons on FX and has
received 16 Emmy nominations (winning one) and three Golden Globe nominations (winning one). The fourth
season of Fargo is anticipated to begin production later in 2019. We recently produced season 1 of Perpetual
Grace, LTD for EPIX, which premiered in June 2019, and season 1 of Four Weddings and a Funeral for Hulu,
which premiered in July 2019. We are currently producing season 3 of Get Shorty for EPIX and season 2 of Condor
for AT&T’s Audience Network, and will begin production later this year on season 2 of Luis Miguel: La Serie. We
have several other internally-developed scripted television series in advanced stages of development and production
that we expect to deliver in future periods.
Unscripted shows. We have numerous successful and enduring unscripted television shows that we are
currently producing. The Voice recently completed its 16th season on NBC and we are in pre-production on the 17th
season, which is anticipated to premiere later this year. The Voice won the Emmy Award for Outstanding Reality
Competition Program for three consecutive years from 2015 through 2017, and was nominated for an impressive ten
Emmy Awards in 2018 and was again nominated for Outstanding Reality Competition Program in 2019. Survivor
recently completed its 38th season on CBS and we have completed production on the 39th season, which is
anticipated to premiere later this year. Shark Tank recently completed its 10th season on ABC and was nominated
for an 2019 Emmy Award. The show has already been renewed by ABC for an 11th season that is anticipated to
premiere later in 2019. Shark Tank was nominated for two Emmy Awards last year including Outstanding
Structured Reality Program. We also produce many other unscripted television shows, including Beat Shazam for
FOX, the endurance race Eco-Challenge with Bear Grylls for Amazon, and Are You Smarter Than a 5th Grader for
Nickelodeon. In addition, we produce two Emmy-nominated nationally syndicated daytime courtroom shows,
Couples Court with The Cutlers and Lauren Lake’s Paternity Court, which won the 2019 Daytime Emmy Award for
Oustanding Legal/Courtroom Program.
In July 2017, we acquired the assets of Evolution Film & Tape, Inc. (“Evolution”), which includes
successful unscripted shows such as The Real Housewives of Orange County, which is currently airing its 14th
season, The Real Housewives of Beverly Hills, which recently completed its 9th season, and Vanderpump Rules,
which recently completed its 7th season. In addition, we also produce Botched for the E! network, The Hills: New
Beginnings for MTV, Sweet Home for Bravo and Bug Juice: My Adventures at Camp for the Disney Channel.
In June 2018, we acquired Big Fish Entertainment LLC (“Big Fish”) further augmenting our television
content segment with a slate of successful unscripted shows lead by the live reality franchise show, Live PD, which
is currently airing its third season on A&E and will commence production on its fourth season to air in the fall of
2020. In addition, we produce Live Rescue, Vet ER Live, Black Ink Crew New York, Black Ink Crew Chicago and
Girls Cruise for VH1, and Hustle & Soul for WE tv.
We also have a robust slate of unscripted television content in various stages of development and
production that we expect to deliver in future periods.
5
EPIX. We are developing, producing and acquiring original programming for EPIX, including targeted
scripted series, unscripted shows and docuseries. We are focused on investing in compelling content to create a
consistent presence of original programming for EPIX that augments the strong pipeline of theatrical releases and
library content that currently exist on the platform. EPIX recently premiered two new original series, Perpetual
Grace, LTD starring Sir Ben Kingsley and produced by MGM Television, and Pennyworth, a dark telling of the
superhero origins of Batman’s legendary butler Alfred Pennyworth from Warner Bros. and DC Comics. Premiering
in September 2019, EPIX will beginning airing its weekly series, NFL: The Grind, produced by NFL Films, and
Godfather of Harlem, a 10-episode gangster crime drama starring Forest Whitaker. In addition, we have a robust
pipeline of original programming in various stages of production and development for 2019 and beyond, including
Belgravia, Slow Burn, Shook Up, and several other scripted and unscripted shows.
Digital Content. We have an in-house digital studio that produces premium original content sourced from
MGM’s significant library of IP and original IP for distribution across digital platforms. As young audiences
migrate their viewing towards web, mobile first and OTT environments, our digital studio is focused on delivering
content to these viewers through the production of short-form, mid-form and traditional length content. We are
particularly focused on producing premium content for brands, cost-effective programming solutions for emerging
platforms and leveraging a pool of diverse and exciting new talent to deliver next-generation IP for our partners.
We have a significant development pipeline with several projects currently in production. We produced Stargate
Origins, originally comprised of 10 mid-form episodes and later re-formatted into a feature length program available
on all major EST and TVOD platforms; The Baxters, which included 24 half-hour episodes for our future
LightWorkers Media faith and family content platform; and we co-developed the interactive digital series entitled
#WarGames, which was produced with Eko. We also have a programming agreement with Vudu, Walmart’s
streaming video platform, in which MGM will create original series based on original ideas and franchises from our
extensive library and television catalogue.
Distribution of film and television content
Theatrical Distribution
In October 2017, together with Annapurna Releasing, LLC (“Annapurna”), we formed a joint venture that
controls and finances the U.S. theatrical marketing and distribution of certain MGM and Annapurna films.
Beginning in March 2019, films from MGM, Orion Pictures and Annapurna are being distributed under each
partner’s respective banner and the “United Artists Releasing” banner. Refer to Joint Ventures below for further
discussion. During 2018, the joint venture released three MGM films, including Death Wish in March 2018,
Operation Finale in August 2018, and our successful franchise film, Creed II, in November 2018, which achieved
the highest ever opening U.S. box office for a live-action film released during Thanksgiving. To-date, the joint
venture has released two MGM films in 2019, Fighting with My Family, which opened in U.S. theaters on
February 14, 2019, and The Hustle, which opened in U.S. theaters on May 10, 2019, as well as one film from Orion
Pictures, Child’s Play, which opened in U.S. theaters on June 21, 2019. The next film to be distributed by United
Artists Releasing will be the MGM film, The Addams Family, which is anticipated to open in U.S. theaters on
October 11, 2019.
Orion Pictures is our in-house creative team focused on a targeted slate of modestly budgeted internally
produced and acquired films. To-date, Orion Pictures has released two films in 2019, including the supernatural
horror thriller, The Prodigy, which opened in U.S. theaters on February 8, 2019, and Child’s Play, which opened in
U.S. theaters on June 21 2019.
Orion Classics is our in-house distribution company focused on multiplatform and specialized releases, as
well as acquisitions.
For films that are theatrically distributed in the U.S. under the MGM, United Artists Releasing, Orion
Pictures or Orion Classics banners, we will utilize the services of other distributors to theatrically release our films
outside of the U.S.
We also participate with third parties in various arrangements to distribute feature films theatrically. These
arrangements allow us to distribute new releases by utilizing third parties to book theaters and execute marketing
campaigns and promotions in return for distribution fees. While third parties provide theatrical distribution services
6
on a film-by-film basis, we often have significant involvement in the decision process regarding key elements of
distribution, such as the creation of marketing campaigns and the timing of the film release schedule, allowing our
experienced management team to provide key input in the critical marketing and distribution strategies while
avoiding the high fixed-cost infrastructure required for physical distribution. For our co-produced films, our co-
production partner generally provides worldwide theatrical distribution services for the applicable film, though for
certain films in certain territories (including the U.S.) we may distribute the film under the MGM banner and/or
utilize the services of other distributors. We released five co-produced films theatrically during 2018. We released
Tomb Raider in March 2018 with our co-production partner Warner Bros. Pictures, Sherlock Gnomes in March 2018
with our co-production partner Paramount, Overboard in May 2018 with our co-production partner Pantelion Films,
A Star is Born in October 2018 with our co-production partner Warner Bros. Pictures, and The Girl in the Spider’s
Web in November 2018 with our co-production partner Sony Pictures. In May 2019, we released The Sun is Also a
Star with our co-production partner Warner Bros. Pictures. In addition, we have a multi-year, multi-picture co-
financing arrangement with BRON Studios (“BRON”), whereby BRON will co-finance certain films from MGM
and Orion Pictures, including titles from our 2019 (Child’s Play and The Addams Family) and our 2020 (Bad Trip
and Gretel & Hansel) theatrical film slates, as well as certain other films that may be released in future years. For
all films co-financed by BRON, MGM retains worldwide distribution rights in all markets.
Television Distribution
We have an in-house television licensing and distribution organization. We license our content for pay
television (including premium services and SVOD) and free television, as well as through other digital distribution
platforms such as transactional VOD (“TVOD”) and advertising-supported VOD (“AVOD”) under various types of
licensing agreements with customers worldwide. In the TVOD market, we license content to providers that allow
consumers to rent our content, including recent theatrically released films, on a per exhibition basis. In the pay
television and SVOD market, we license content to channels/platforms globally that generally require subscribers to
pay a premium fee to view the channel. In the pay television, free television and VOD markets, we license our film
and television content, including recently released and library content, on an individual basis and through output
agreements. Output agreements typically require the licensee to license the Company’s recently released film
content for a defined period of time with payments based on U.S. or international theatrical box office performance
metrics. We continue to establish output agreements with customers throughout the world.
In addition, we license film and television content across a broad range of digital platforms that use various
means of distribution to consumers electronically, including SVOD streaming services, such as Amazon, Hulu and
Netflix, TVOD distribution via cable, satellite and internet, and AVOD services such as YouTube and Roku. We
believe future increases in broadband penetration to consumer households, shifting consumer preferences for on-
demand content across multiple platforms and devices, as well as the continued expansion of VOD platforms
internationally will provide continued growth in this revenue.
Home Entertainment Distribution
Home entertainment distribution includes the sales, marketing and promotion of content for physical
distribution (DVD, Blu-ray and 4K Blu-ray discs) and marketing and promotion in connection with electronic sell-
through (“EST”). Fox Home Entertainment (“Fox”) provides our physical home entertainment distribution on a
worldwide basis (excluding certain territories) for a substantial number of our feature films and television series,
including Spectre, Skyfall, Death Wish, RoboCop, Child’s Play, The Prodigy, Vikings, The Handmaid’s Tale, Teen
Wolf and other titles, and Fox performed certain EST distribution functions for our feature films through June 30,
2019. Our physical home entertainment distribution agreement with Fox expires on June 30, 2020, and MGM has
the option to extend the term. Universal Home Entertainment (“Universal”) provides our physical home
entertainment distribution on a worldwide basis (excluding certain territories) on certain recently released films,
including Operation Finale, Fighting With My Family and The Hustle. In addition, for certain films, our co-
production partners control physical home entertainment distribution rights. For example, Sony Pictures
Entertainment, Inc. (“Sony”) is the physical home entertainment distributor for films in the 21 Jump Street franchise,
The Magnificent Seven and The Girl in the Spider’s Web; Lions Gate Entertainment Corp (“Lionsgate”) is the
physical home entertainment distributor for Overboard; Warner Bros. Entertainment Inc. is the physical home
entertainment distributor for A Star is Born, Barbershop: The Next Cut, The Hobbit trilogy, Creed, Creed II,
7
Everything, Everything, How to be Single, Max, Me Before You, The Sun is Also a Star and Tomb Raider; 20th
Century Fox is the physical home entertainment distributor for Poltergeist; and Paramount Pictures Corporation
(“Paramount”) is the physical home entertainment distributor for Hercules, Sherlock Gnomes and Ben-Hur. EST
distribution rights for these and other co-financed films may be controlled by us or our partners depending on the
terms of the applicable co-financing and distribution agreement.
As with theatrical distribution controlled by third parties, while we use the physical distribution services of
third parties, we often have significant involvement in the decision-making process regarding key elements of
distribution, including the creation and execution of marketing campaigns, sku configuration, pricing levels and the
timing of releases, allowing our experienced management team to provide key input in the critical marketing and
distribution strategies while avoiding the high fixed-cost infrastructure required for physical home entertainment
distribution.
Industry revenue from the physical home entertainment market continues to decline due to changes in
consumer preferences and behavior, increased competition and pricing pressure. However, consumers are
increasingly viewing content on an on-demand or time-delayed basis on televisions (via smart televisions, set-top
boxes, Blu-ray players, gaming consoles and other media devices), personal computers, and handheld and mobile
devices. As a result, we continue to see growth in SVOD, TVOD, EST and other forms of electronic delivery and
streaming services (see Television Distribution above) across a broad range of platforms. These digital formats
typically have a higher margin than physical formats, largely due to the expense associated with the production,
packaging and delivery of physical media relative to digital distribution.
Ancillary Businesses
We license film and television content and other intellectual property rights for use in interactive games
and consumer products. Prominent properties that we license in this regard include James Bond, Pink Panther,
Stargate, Rocky/Creed, and RoboCop.
We also control music publishing rights to various compositions featured in our film and television content,
as well as the soundtrack, master use and synchronization licensing rights to many properties. We exploit these
rights through third-party licensing of publishing, soundtrack, master use and synchronization rights. In 2018, we
had an agreement with Sony/ATV under which Sony/ATV administered much of this licensing. Beginning
March 31, 2019, we have an agreement with Universal Music Publishing Group (“UMPG”) under which UMPG
administers much of this licensing.
We license film clips, still images, and other elements from our film and television content for use in
advertisements, feature films and other forms of media. We also license rights to certain properties for use in on-
stage productions.
Media Networks
We distribute feature films and television content to audiences in the U.S. and certain international
territories through our wholly-owned and joint venture television channels. Currently, we own and operate EPIX, a
premium pay television network delivering a lineup of original programming and blockbuster movies. EPIX is
available through cable, satellite, telecommunications and streaming TV providers as a linear television, video-on-
demand and 'TV Everywhere' service and is currently available in the U.S. and Puerto Rico. EPIX also licenses
content to SVOD operators.
We also own and operate an MGM-branded channel in the U.S., MGM HD, and we own and/or operate
several multicast networks including ThisTV, Comet TV, LightTV and Charge!. ThisTV is a top performing free
multicast movie network cleared in 74% of the U.S. and reaching approximately 85 million households. Comet TV
is a sci-fi-oriented domestic multicast network featuring MGM content that is cleared in 86% of the country and
reaches approximately 98 million households. LightTV is a multicast network focused on faith and family-oriented
content that is cleared in 65% of the country and reaches approximately 75 million households. Charge! is a free
action/adventure-oriented multicast network that is cleared in 53% of the country and reaches approximately 61
million households. We continue to seek and evaluate additional opportunities to create new channels or expand our
existing channels.
8
EPIX Entertainment LLC (EPIX). In May 2017, we acquired EPIX Entertainment LLC (formerly Studio 3
Partners, LLC), which was previously a joint venture with Viacom Inc., Paramount and Lionsgate. Prior to
May 2017, we had a 19.09% equity investment in EPIX Entertainment LLC. EPIX Entertainment LLC operates
EPIX, a premium pay television channel that licenses first-run films, select library features and television content
from these studios as well as other content providers, as well as premium original content. As part of the acquisition
transaction, Paramount and Lionsgate will continue to provide their first-run theatrical releases to EPIX under multi-
year agreements.
For financial reporting purposes, beginning May 11, 2017 we consolidated 100% of the revenue, expenses
and net assets of EPIX. During the period from January 1 through May 10, 2017 we recorded our 19.09% share of
the net income of EPIX using the equity method of accounting, which totaled $7.1 million. Dividends received from
EPIX during the period from January 1 through May 10, 2017 totaled $14.3 million and were recorded against
investments in affiliates in the consolidated balance sheet and included in undistributed earnings of affiliates in cash
flow from operating activities in the consolidated statement of cash flow.
Joint Ventures
U.S. Theatrical Distribution Joint Venture. In October 2017, together with Annapurna, we formed a joint
venture that controls and finances the U.S. theatrical marketing and distribution of certain MGM and Annapurna
films. Beginning in March 2019, films from MGM, Orion Pictures and Annapurna are being distributed under each
partner’s respective banner and the “United Artists Releasing” banner. Based on the underlying terms of the joint
venture arrangement, we account for our share of certain profits and losses of the joint venture using the equity
method of accounting and account for the U.S. theatrical marketing and distribution results for MGM and Orion
Pictures films distributed by the joint venture on a net basis similar to our accounting for co-produced film content
(refer to Critical Accounting Policies and Estimates – Revenue Recognition below for further discussion). We also
make monthly capital contributions to the joint venture to fund our equitable share of overhead and other operating
expenses. For the six month periods ended June 30, 2019 and 2018, our total capital contributions including
accruals amounted to $5.6 million and $4.1 million, respectively.
Telecine Programacao de Filmes Ltda. We have an equity investment in Telecine Programacao de Filmes
Ltda. (“Telecine”), a joint venture with Globo Comunicacao e Participacoes S.A. (“Globo”), Paramount, 20th
Century Fox and NBC Universal, Inc. that operates a pay television network in Brazil. Telecine is not consolidated
in our financial statements and we do not record our share of the net income of Telecine in our financial statements
since our investment is less than 20% and we do not exercise significant influence over Telecine’s operating or
financial policies. As there is no readily determinable fair value, our investment is accounted for at cost less
impairment, if any, and adjusted for any observable price changes. We recognize income from our investment in
Telecine when we receive dividends. In addition, we recognize television licensing revenue from first-run and
library films that we license to Telecine under a multi-year licensing agreement.
Non-Equity Method Investments. Equity in net earnings (losses) of affiliates in our consolidated statements
of income for the six month periods ended June 30, 2019 and 2018 included $1.1 million and $2.3 million,
respectively, of dividend income from non-equity method investments.
9
Corporate Information
MGM Holdings is a Delaware corporation and is the ultimate parent company of the MGM family of companies, including its subsidiary Metro-Goldwyn-Mayer Inc. (“MGM Inc.”).
Our corporate headquarters is located at 245 North Beverly Drive, Beverly Hills, California 90210 and our telephone number at that address is (310) 449-3000. Our website address is www.mgm.com.
At June 30, 2019, 44,801,133 shares of Class A common stock, par value $0.01 per share were outstanding. The transfer agent and registrar for our common stock is Continental Stock Transfer & Trust, located at 1 State Street, 30th Floor, New York, New York 10004-1561. Contact and additional information regarding Continental Stock Transfer & Trust can be found at www.continentalstock.com.
Facilities
We lease approximately 151,000 square feet of office space, plus related parking and storage facilities, for our corporate headquarters in Beverly Hills, California under a lease that expires in 2026. We also lease approximately 50,500 square feet of office space in New York, New York that is primarily used for EPIX and our TV syndication group, 63,632 square feet of office space in New York, New York that is used for Big Fish, 25,883 square feet of office space in West Hollywood, California that is licensed to our U.S. theatrical distribution joint venture, 26,000 square feet of office space in Burbank, California that is used for Evolution, and approximately 38,500 square feet of office space in Culver City, California that is primarily used for our MGM channels related business activities. In addition, we have television distribution offices in Miami, London, Sydney and Toronto. On occasion, we may lease studio facilities, stages and other space from unaffiliated parties. Such leases are generally on an as-needed basis in connection with the production of various film, television and other projects.
Board of Directors and Office of the CEO
The members of the Board of Directors of MGM Holdings (the “Board”) are Kevin Ulrich (Chairman), James Dondero, David Krane, Fredric Reynolds and Nancy Tellem. As of June 30, 2019, Anchorage Capital Partners, Highland Capital Partners and Solus Alternative Asset Management each individually, or together with their respective affiliated entities, owned more than 10% of the issued and outstanding shares of common stock of MGM Holdings. Anchorage Capital Partners and Highland Capital Partners each have a representative on the Board, Kevin Ulrich and James Dondero, respectively. Effective March 19, 2018 and following the exit of our former Chief Executive Officer (“CEO”), the Board established an Office of the CEO, comprised of a group of the Company’s senior leaders and division heads.
Affiliation with a Broker-Dealer
MGM Holdings is not affiliated, directly or indirectly, with any broker-dealer or any associated person of a broker-dealer.
June 30, December 31,
2019 2018
Assets
Current assets:
Cash and cash equivalents 246,166$ 216,386$
Accounts receivable, net 578,284 537,025
Current income taxes receivable 1,070 23,630
Other current assets and prepaid program rights 53,736 31,560
Program rights, net 124,198 131,930
Total current assets 1,003,454 940,531
Noncurrent assets:
Accounts receivable, net 125,619 173,799
Other assets and prepaid program rights 40,618 29,249
Film and television costs and program rights, net 1,732,996 1,605,287
Investments in affiliates 60,165 58,999
Property and equipment, net 34,320 30,921
Goodwill 902,009 902,009
Other non-content intangible assets, net 486,097 511,724
Total noncurrent assets 3,381,824 3,311,988
Total assets 4,385,278$ 4,252,519$
Liabilities and equity
Current liabilities:
Accounts payable and accrued liabilities 240,815$ 185,831$
Accrued participants’ share 86,152 64,797
Current income taxes payable 7,192 13,217
Program obligations 60,919 63,379
Corporate debt 4,000 4,000
Advances and deferred revenue 120,764 68,403
Other current liabilities 22,182 10,939
Total current liabilities 542,024 410,566
Noncurrent liabilities:
Accrued liabilities 133,525 125,077
Accrued participants’ share 152,323 216,748
Deferred income taxes payable 152,572 173,985
Program obligations 835 1,185
Corporate debt 1,593,531 1,464,411
Advances and deferred revenue 9,178 10,884
Other liabilities 35,373 35,418
Total noncurrent liabilities 2,077,337 2,027,708
Total liabilities 2,619,361 2,438,274
Commitments and contingencies
Equity:
Class A common stock, $0.01 par value, 110,000,000 shares authorized, 790 789
78,952,883 and 78,879,116 shares issued, respectively,
and 44,801,133 and 44,760,170 shares outstanding, respectively
Additional paid-in capital 2,131,961 2,124,185
Retained earnings 1,488,229 1,525,868
Accumulated other comprehensive loss (26,501) (11,106)
Treasury stock, at cost, 34,151,750 and 34,118,946 shares, respectively (1,829,779) (1,827,450)
Total MGM Holdings Inc. stockholders’ equity 1,764,700 1,812,286
Noncontrolling interests 1,217 1,959
Total equity 1,765,917 1,814,245
Total liabilities and equity 4,385,278$ 4,252,519$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MGM Holdings Inc.
Consolidated Balance Sheets(Unaudited, in thousands, except share data)
10
2019 2018 2019 2018
Revenue 406,568$ 408,014$ 723,672$ 679,546$
Expenses:
Operating 262,108 274,342 467,673 443,063
Distribution and marketing 45,641 33,431 69,765 45,549
General and administrative 58,024 50,744 114,023 109,441
Depreciation and non-content amortization 16,332 15,295 32,247 29,612
Total expenses 382,105 373,812 683,708 627,665
Operating income 24,463 34,202 39,964 51,881
Equity in net earnings (losses) of affiliates 1,260 2,916 (6,842) (4,374)
Interest expense:
Contractual interest expense (21,443) (12,334) (41,823) (23,087)
Amortization of deferred financing costs,
original issue discount and other interest costs (2,098) (984) (3,683) (1,977)
Interest income 2,089 993 3,262 1,956
Other income (expense), net 725 (89) 403 (148)
Income (loss) before income taxes 4,996 24,704 (8,719) 24,251
Income tax benefit (provision) (714) 38,433 874 39,744
Net income (loss) 4,282 63,137 (7,845) 63,995
Less: Net income (loss) attributable to noncontrolling interests (483) 751 (742) 696
Net income (loss) attributable to MGM Holdings Inc. 4,765$ 62,386$ (7,103)$ 63,299$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MGM Holdings Inc.
Consolidated Statements of Income(Unaudited, in thousands)
Three Months Ended June 30, Six Months Ended June 30,
11
2019 2018 2019 2018
Net income (loss) 4,282$ 63,137$ (7,845)$ 63,995$
Other comprehensive income (loss), net of tax:
Unrealized gain on securities 21 7 78 3
Unrealized gain (loss) on derivative instruments (10,641) (1,770) (15,981) 2,814
Retirement plan adjustments 70 52 140 103
Foreign currency translation adjustments 70 (505) 368 (225)
Other comprehensive income (loss) (10,480) (2,216) (15,395) 2,695
Less: Comprehensive income (loss) attributable to noncontrolling interests (483) 751 (742) 696
Comprehensive income (loss) attributable to MGM Holdings Inc. (5,715)$ 60,170$ (22,498)$ 65,994$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MGM Holdings Inc.
Consolidated Statements of Comprehensive Income
(Unaudited, in thousands)
Three Months Ended June 30, Six Months Ended June 30,
12
Accumulated MGM
Additional Other Holdings Inc.
Number Par Paid-in Retained Comprehensive Treasury Stockholders’ Noncontrolling Total
of Shares Value Capital Earnings Loss Stock Equity Interests Equity
Balance, January 1, 2019 44,760,170 789$ 2,124,185$ 1,525,868$ (11,106)$ (1,827,450)$ 1,812,286$ 1,959$ 1,814,245$
Cumulative effect of accounting changes – – – (30,536) – – (30,536) – (30,536)
Purchase of treasury stock (32,804) – – – – (2,329) (2,329) – (2,329)
Issuance of common stock 70,423 1 – – – – 1 – 1
Issuance of restricted stock 4,376 – – – – – – – –
Forfeiture of restricted stock (1,032) – – – – – – – –
Stock-based compensation expense – – 7,776 – – – 7,776 – 7,776
Net loss – – – (7,103) – – (7,103) (742) (7,845)
Other comprehensive loss – – – – (15,395) – (15,395) – (15,395)
Balance, June 30, 2019 44,801,133 790$ 2,131,961$ 1,488,229$ (26,501)$ (1,829,779)$ 1,764,700$ 1,217$ 1,765,917$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Common Stock Class A
MGM Holdings Inc. Stockholders' Equity
MGM Holdings Inc.
Consolidated Statement of Equity(Unaudited, in thousands, except share data)
13
2019 2018
Operating activities
Net income (loss) (7,845)$ 63,995$
Adjustments to reconcile net income to net cash provided by
operating activities:
Additions to film and television costs and program rights, net (434,335) (297,821)
Amortization of film and television costs and program rights 322,886 323,843
Depreciation and non-content amortization 32,247 29,612
Amortization of deferred financing costs and original issue discount 3,164 1,972
Stock-based compensation expense 7,776 5,059
Provision for doubtful accounts 912 (2,708)
Change in fair value of financial instruments (830) –
Undistributed net losses of affiliates 7,925 6,671
Other non-cash expenses 290 144
Changes in operating assets and liabilities:
Accounts receivable, net (65,685) 9,965
Current income taxes receivable 22,560 –
Other assets and prepaid program rights (38,019) 2,109
Accounts payable, accrued and other liabilities 68,105 30,917
Accrued participants’ share (26,496) (22,895)
Current and deferred income taxes payable (10,023) (45,879)
Program obligations (2,810) –
Advances and deferred revenue 47,027 (17,763)
Net cash provided by (used in) operating activities (73,151) 87,221
Investing activities
Acquisition of Big Fish (net of $25.4 million of cash acquired) – (39,612)
Investments in affiliates (8,266) (4,887)
Sale of investment 125 –
Additions to property and equipment (10,018) (7,490)
Net cash used in investing activities (18,159) (51,989)
Financing activities
Repayments of Term Loans (2,000) (10,625)
Borrowings from Revolving Credit Facility 370,000 438,000
Repayments of Revolving Credit Facility (240,000) (88,000)
Assignment of Borrowings from Existing Lender (35,000) –
Assumption of Borrowings by New Lender 35,000 –
Issuance of common stock 1 1,422
Purchase of treasury stock (7,388) (346,566)
Deferred financing costs – (376)
Contribution from noncontrolling interests – 1,786
Net cash provided by (used in) financing activities 120,613 (4,359)
Net change in cash and cash equivalents from operating, investing
and financing activities 29,303 30,873
Net change in cash due to foreign currency fluctuations 477 (289)
Net change in cash and cash equivalents 29,780 30,584
Cash and cash equivalents at beginning of year 216,386 123,520
Cash and cash equivalents at end of period 246,166$ 154,104$
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Six Months Ended June 30,
MGM Holdings Inc.
Consolidated Statements of Cash Flows(Unaudited, in thousands)
14
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Six Months Ended June 30, 2019 and 2018
15
Note 1—Organization, Business and Summary of Significant Accounting Policies
Organization. The accompanying unaudited condensed consolidated financial statements include the accounts of MGM
Holdings Inc. (“MGM”), a Delaware corporation, and its direct, indirect and controlled majority-owned subsidiaries,
including Metro-Goldwyn-Mayer Inc. (“MGM Inc.”), (collectively, the “Company”).
Business. The Company is a leading entertainment company. The Company’s operations include the development,
production and financing of feature films and television content and the worldwide distribution of entertainment content
primarily through television and digital distribution. The Company also distributes film and television content produced
or financed, in whole or in part, by third parties. In addition, the Company generates revenue from the licensing of
content and intellectual property rights for use in consumer products and interactive games, as well as various other
licensing activities.
In May 2017, the Company acquired EPIX Entertainment LLC (formerly Studio 3 Partners, LLC), which owns and
operates EPIX, a premium pay television network delivering the latest movie releases, classic film franchises, original
series, documentaries, comedy specials and music events on television, through on demand services and via multiple
devices. EPIX is available through cable, satellite and telecommunications multichannel television providers and digital
distributors as a linear television, video-on-demand, “TV Everywhere” and over-the-top service, and is currently
available in the U.S., Puerto Rico and Bermuda. EPIX also licenses content to subscription video-on-demand (“SVOD”)
operators. The Company also owns or holds interests in MGM-branded channels in the United States (“U.S.”), as well
as interests in pay television networks in the United States and Brazil.
Basis of Presentation and Principles of Consolidation. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”)
for interim financial statements. Accordingly, these financial statements do not include certain information and
footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these financial
statements contain all adjustments necessary for a fair presentation of these financial statements. The balance sheet at
December 31, 2018 has been derived from the audited financial statements at that date but does not include all of the
information and footnotes required by U.S. GAAP for complete financial statements. The results of operations for
interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements
should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended
December 31, 2018.
Certain immaterial reclassifications have been made to amounts reported in general and administrative expenses and
other expense, net, in the unaudited condensed consolidated statements of income for the three and six month periods
ended June 30, 2018 resulting from the Company’s adoption of Accounting Standards Update (“ASU”) 2017-07
Compensation – Retirement Benefits on January 1, 2019. See the New Accounting Pronouncements section below for
additional information.
Inventories related to home entertainment distribution are included in other current assets in the unaudited condensed
consolidated classified balance sheet.
In the ordinary course of business, the Company’s business segments enter into various types of intercompany
transactions including, but not limited to, the licensing of the Company’s film and/or television content to the
Company’s media networks, including EPIX. Intercompany licensing revenue, programming cost amortization expense
and the corresponding assets and liabilities recognized by the counterparties to these transactions are eliminated in
consolidation and, therefore, do not affect the Company’s unaudited condensed consolidated financial statements.
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
16
Note 1—Organization, Business and Summary of Significant Accounting Policies (Continued)
The Company’s investments in affiliates, over which the Company has significant influence but not control, are
accounted for using the equity method (see Note 7).
Allowance for Doubtful Accounts. The Company determines its allowance by monitoring its delinquent accounts and
estimating a reserve based on contractual terms and other customer-specific issues. Additionally, the Company records a
general reserve against all customer receivables not reviewed on a specific basis. The Company charges off its
receivables against the allowance when the receivable is deemed uncollectible. At June 30, 2019 and December 31,
2018, allowance for doubtful accounts aggregated $11.0 million and $13.2 million, respectively.
Goodwill and Other Non- Content Intangible Assets. Intangible assets with definite lives are amortized on a straight-line
basis over their estimated useful lives, while intangible assets with indefinite lives, including goodwill, are not subject
to amortization, but instead are tested for impairment annually and more frequently if events or changes in
circumstances indicate that it is more likely than not the asset is impaired. Goodwill and non-content intangible assets
are evaluated for impairment on an annual basis, using a qualitative and/or quantitative analysis, as appropriate in
accordance with Accounting Standards Codification (“ASC”) Topic 350, Intangibles–Goodwill and Other.
Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited
condensed consolidated financial statements and the related notes thereto. Amortization expense for capitalized film and
television costs is calculated in accordance with the individual-film-forecast method of accounting utilizing
management estimates of future revenue and expenses expected to be recognized over a period not to exceed ten years
from the initial broadcast date, or for a period not to exceed 20 years for acquired film and television libraries. In
addition, the Company is required to make estimates regarding the utilization of its program rights and the allocation of
program rights between pay television and other distribution markets. All estimates require management to make
judgments that involve uncertainty, and any revisions to these estimates can result in significant quarter-to-quarter and
year-to-year fluctuations in amortization expense. Changes to such estimates may also lead to the write down (through
increased amortization expense) of film and television costs or program rights to their estimated fair value.
Other estimates include reserves for future product returns from physical home entertainment distribution, allowances
for doubtful accounts receivable and other items requiring judgment. Management bases its estimates and assumptions
on historical experience, current trends and other factors believed to be relevant at the time the unaudited condensed
consolidated financial statements are prepared. Actual results may differ materially from those estimates and
assumptions.
Subsequent Events. The Company evaluated, for potential recognition and disclosure, all activity and events that
occurred through the date of issuance, August 6, 2019. Such review did not result in the identification of any subsequent
events that would require recognition in the unaudited condensed consolidated financial statements or disclosure in the
notes to these unaudited condensed consolidated financial statements.
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
17
Note 1—Organization, Business and Summary of Significant Accounting Policies (Continued)
New Accounting Pronouncements
Revenue Recognition. On January 1, 2019, the Company elected to early adopt, on a modified retrospective basis, ASU
2014-09, Revenue from Contracts with Customers, which supersedes the provisions of ASC Topic 605, Revenue
Recognition to establish a new revenue recognition framework for all companies across all industries. The underlying
principal of the new revenue framework is that companies should recognize revenue to depict the transfer of goods or
services to customers at an amount that the company expects to be entitled to in exchange for those goods or services. In
accordance with the modified retrospective approach, the Company started recognizing revenue under the new
framework beginning January 1, 2019, but prior periods have not been adjusted. Instead, the Company recorded a $30.5
million net transition adjustment related to all incomplete contracts as of January 1, 2019 as a decrease to the opening
balance of retained earnings primarily related to revenue previously recognized in the areas discussed below.
The new revenue framework impacts the timing of revenue recognition for multiple areas of the Company’s business,
the most notable being revenue associated with renewals or extensions of existing content licensing agreements.
Effective January 1, 2019, revenue for renewals or extensions of existing contracts for titles that are in-window when
the extension is executed is recognized as revenue upon the commencement of the extension or renewal period instead
of on the date the renewal or extension was agreed to (prior methodology). Sales and usage based royalties, under the
new framework, are recognized in the period that the underlying sale or usage occurs using the best estimates available
of the amounts due to the Company, rather than at the beginning of the license period or after a reporting statement is
received from the licensee (prior methodology). In addition, certain intellectual property, such as brands, tradenames
and logos, is categorized in the new guidance as symbolic. Under the new guidance, revenue from licenses of symbolic
intellectual property is recognized over the corresponding license term.
Also under the new guidance, the Company presents sales returns as refund liabilities instead of contra-assets within
accounts receivable. Upon adoption of the new standard, the Company has modified applicable processes, systems, and
controls accordingly to adhere to the new revenue recognition requirements.
Equity Investments. On January 1, 2019, the Company adopted ASU 2016-01, Financial Instruments–Overall:
Recognition and Measurement of Financial Assets and Financial Liabilities, which requires that all equity investments
in unconsolidated entities be measured at fair value through earnings. The adoption of this guidance impacts the
accounting for the Company’s investments in equity securities, other than consolidated subsidiaries and those accounted
for under the equity method. Under the new guidance, such investments that do not have a readily determinable fair
value are eligible for the measurement alternative and are measured at cost, less impairment, plus or minus subsequent
adjustments for observable price changes. During the three and six month periods ended June 30, 2019, the Company
recognized a gain of $7.7 million related to one of its non-equity method investments, which was included in equity in
net earnings (losses) of affiliates in the unaudited condensed consolidated statements of income.
Lease Accounting. In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize a
right-of-use asset and a lease liability for all leases with a lease term greater than 12 months. At lease inception,
companies will be required to measure and record a lease liability equal to the present value of future lease payments. A
corresponding right-of-use asset will be recorded based on the liability, subject to certain adjustments. ASU 2016-02
will be effective for the Company for the annual period ended December 31, 2020 and for interim and annual periods
thereafter, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this new
guidance will have on its consolidated financial statements; however, the Company currently believes the most
significant change will be related to the increases in assets and liabilities for the recognition of right-of-use assets and
lease liabilities on the Company's balance sheet for its operating leases.
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
18
Note 1—Organization, Business and Summary of Significant Accounting Policies (Continued)
Compensation – Retirement Benefits. On January 1, 2019, the Company elected to early adopt ASU 2017-07, Improving
the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changes how
employers that sponsor defined benefit pension plans present the net periodic benefit cost in the income statement.
Under the new guidance, employers present the service cost component of the net periodic benefit cost in the same
income statement line item as other employee compensation costs arising from services rendered during that period.
Employers present the other components of net periodic benefit cost separately from the line item that includes the
service cost. The Company adopted the new guidance on a retrospective basis which resulted in the reclassification of
$0.2 million and $0.1 million of other pension costs from general and administrative expenses to other expense, net in
the unaudited condensed consolidated statement of income for the six month periods ended June 30, 2019 and 2018,
respectively. The Company does not recognize any service costs associated with its defined benefit plan since the plan
was frozen effective December 31, 2000.
Derivatives and Hedging. In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for
Hedging Activities, which amends the current hedge accounting guidance to make more financial and nonfinancial
hedging strategies eligible for hedge accounting. The new guidance also amends certain presentation and disclosure
requirements and changes how companies assess effectiveness by allowing a qualitative assessment, instead of
quantitative analysis, for certain hedges. For such qualifying cash flow hedges, the entire change in fair value of the
hedging instrument included in the assessment of hedge effectiveness will be recorded in other comprehensive income
(“OCI”), and amounts deferred in OCI will be reclassified to earnings in the same income statement line item that is
used to present the earnings effect of the hedged item when the hedged item affects earnings. An initial quantitative test
to establish that the hedge relationship is highly effective at inception is still required. ASU 2017-12 will be effective
for the Company for the annual period ended December 31, 2020 and for interim and annual periods thereafter, with
early adoption permitted. The Company is in the process of evaluating the impact that the new standard will have on its
consolidated financial statements.
Defined Benefit Plans. In August 2018, the FASB issued ASU 2018-14, Changes to the Disclosure Requirements for
Defined Benefit Plans, which amends the current reporting guidance to remove various disclosure requirements no
longer considered to be cost beneficial, such as the requirement to disclose amounts in accumulated other
comprehensive income expected to be recognized into net periodic benefit cost. The new guidance also adds new
disclosure requirements including an explanation of the reasons for significant gains and losses related to changes in the
benefit obligation. ASU 2018-14 will be effective for the Company on January 1, 2021 and for interim and annual
periods thereafter, with early adoption permitted. The Company is in the process of evaluating the impact that the new
standard will have on its consolidated financial statements.
Cloud Computing Arrangements. In September 2018, the FASB issued ASU 2018-15, Accounting for Implementation
Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which clarifies the current guidance to
require customers in cloud computing arrangement that is a service contract to follow internal-use software guidance to
determine which implementation costs to capitalize as assets or expense as incurred. Additionally, the guidance also
specifies that any capitalized implementation costs will be amortized over the term of the hosting arrangement. ASU
2018-15 will be effective for the Company on January 1, 2021 and for interim and annual periods thereafter, with early
adoption permitted. The Company is in the process of evaluating the impact that the new standard will have, however, it
does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
19
Note 1—Organization, Business and Summary of Significant Accounting Policies (Continued)
Production Cost Capitalization. In March 2019, the FASB issued ASU 2019-02, Improvements to Accounting for Costs
of Films and License Agreements for Program Materials, which amends the current guidance to allow for costs to
produce episodic television series to be capitalized as incurred, as is the case for production costs for films. The new
guidance also introduces various new requirements, including that an entity test a film or license agreement for
impairment at the film group level when the film or license agreement is predominantly monetized with other
films/license agreements. Furthermore, any changes to estimates resulting from such a test must be amortized
prospectively. ASU 2019-02 will be effective for the Company on January 1, 2021, and for interim and annual periods
thereafter, with early adoption permitted. The Company is in the process of evaluating the impact that the new standard
will have on its consolidated financial statements.
Note 2 – Revenue
General. The Company’s principal sources of revenue include the exploitation of film and television content through
traditional distribution platforms, including theatrical, home entertainment and television, with an increasing
contribution from digital distribution platforms in existing and emerging markets. In addition, the Company recognizes
significant affiliate and SVOD distribution revenue from the distribution of EPIX.
Revenue is recognized upon transfer of control of promised services or goods to customers in an amount that reflects the
consideration the Company expects to receive in exchange for those services or goods. Revenues do not include taxes
collected from customers on behalf of taxing authorities such as sales tax and value-added tax.
Licensing Arrangements. The Company's content licensing arrangements include fixed fee and minimum guarantee
arrangements, and sales or usage based royalties.
Fixed Fee or Minimum Guarantees. The Company's fixed fee or minimum guarantee arrangements may, in some cases,
include multiple titles, multiple license periods (windows) with a substantive period in between the windows, rights to
exploitation in different media, or rights to exploitation in multiple territories, which may be considered distinct
performance obligations. When these performance obligations are considered distinct, the fixed fee or minimum
guarantee in the arrangement is allocated to the title, window, media right or territory as applicable, based on estimates
of relative standalone selling prices. The amounts related to each performance obligation (i.e., title, window, media or
territory) are recognized when the content has been delivered, and the window for the exploitation right in that territory
has begun, which is the point in time at which the customer is able to begin to use and benefit from the content.
Sales or Usage Based Royalties. Sales or usage based royalties represent amounts due to the Company based on the
“sale” or “usage” of the Company's content by the customer, and revenues are recognized at the later of when the
subsequent sale or usage occurs, or the performance obligation to which some or all the sales or usage-based royalty has
been allocated has been satisfied (or partially satisfied). Generally when the Company licenses completed content (with
standalone functionality, such as a movie, or television show), its performance obligation will be satisfied prior to the
sale or usage. When the Company licenses intellectual property that does not have stand-alone functionality (e.g.,
brands, themes, logos, etc.), its performance obligation is generally satisfied in the same period as the sale or usage. The
actual amounts due to the Company under these arrangements are generally not reported to the Company until after the
close of the reporting period. The Company records revenue under these arrangements for the amounts due and not yet
reported to the Company based on estimates of the sales or usage of these customers and pursuant to the terms of the
contracts. Such estimates are based on information from the Company's customers, historical experience with similar
titles and customers in that market or territory, the performance of the title in other markets, and/or data available to the
Company.
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
20
Note 2 – Revenue (Continued)
Co-production Arrangements. Revenue from feature film and television content under the Company’s various co-
production and distribution arrangements is recorded in accordance with the accounting guidance governing gross
versus net reporting and collaborative arrangements. The determination of the applicable accounting treatment involves
judgment and is based on the Company’s evaluation of the unique terms and conditions of each agreement. Revenue
and expenses are recorded on a gross basis if the Company acts as a principal in a transaction, which it typically does
for the distribution rights it controls. Revenue and expenses are recorded on a net basis if the Company acts as an agent
in a transaction, which it typically does for the distribution rights controlled by its co-production partners. Net revenue
represents gross revenue less distribution fees and expenses.
Revenue is primarily comprised of the following: theatrical and ancillary revenues which are included in the Film
Content segment; Television Licensing, Home Entertainment and Other are applicable to both the Film Content and
Television Content segments; and EPIX and Other Channels which are included in the Media Networks Segment.
Theatrical. Revenue from theatrical distribution of film content is recognized on the dates of exhibition and typically
represents a percentage of theatrical box office receipts collected by the exhibitors.
Television licensing. Revenue from television licensing, together with related costs, is typically recognized when the
film or television content is initially available to the licensee for telecast. Revenue from transactional video-on-demand
distribution is recognized in the period in which the sales transaction occurs. For scripted and unscripted television
content, television licensing revenue is recognized ratably upon delivery of each episode to the licensee, even though
the licensee may elect to delay the initial airing of each episode until a future date during the license period.
Home entertainment. Revenue from physical home entertainment distribution is recognized, net of reserves for
estimated returns and doubtful accounts receivable, and together with related costs, in the period in which the product is
shipped and is available for sale to the public. Revenue from transactional electronic sell-through distribution is
recognized in the period in which the sales transaction occurs.
Other revenue. Other revenue primarily includes net revenue for the Company’s share of the distribution proceeds
earned by co-production partners for co-produced film and television content for which the Company’s partners control
the distribution rights in various distribution windows, including theatrical, home entertainment, television licensing and
ancillary markets. Net revenue from co-produced film and television content is impacted by the timing of when a title’s
cumulative aggregate revenue exceeds its cumulative aggregate distribution fees and expenses.
Ancillary. Ancillary revenue primarily includes the licensing of film and television content and other intellectual
property rights for use in interactive games and consumer products, as well as music revenue from the licensing of
publishing, soundtrack, master use and synchronization rights to various compositions featured in film and television
content. Revenue from the licensing of intellectual property rights for use in interactive games and consumer products is
typically recognized ratably over the license period. Separately, the licensing of music rights to film and television
content (with standalone functionality), is recognized at the beginning of the license period once the customer obtains
and can benefit from such content.
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
21
Note 2 – Revenue (Continued)
Media Networks. Revenues from the Company’s media networks, including EPIX, primarily include amounts earned
under affiliation agreements with U.S. Multichannel Video Programming Distributors (“MVPDs”), virtual MVPDs and
OTT distribution through apps and online platforms, as well as fees associated with SVOD distribution arrangements.
Affiliate revenue from cable television and satellite operators, telecommunication companies and online video
distributors is recognized in the period during which the channel services are provided. Fees associated with SVOD
distribution are recognized upon the availability of programming to the distributor. To the extent that the Company
maintains an on-going performance commitment or a requirement for a minimum number of titles over a contractual
term, revenue may be recognized as such obligations are satisfied, or deferred until such obligations are satisfied or the
term has concluded.
Other channels. Other channels primarily includes the Company’s wholly-owned and joint venture broadcast and cable
networks, which currently include an MGM-branded channel in the U.S., MGM HD and several multicast networks.
Revenue for these broadcast and cable networks is primarily comprised of cable subscriber fees and advertising sales,
which are recorded as revenue in the period during which the channel services are provided.
The following table presents revenue by segment, market, or product line for the three and six month periods ended
June 30, 2019 and 2018 (in thousands). The prior year information in the table below has not been adjusted under the
modified retrospective method of adoption of the new revenue recognition guidance.
Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
Film Content
Theatrical $ 5,902 $ 7,044 $ 14,722 $ 15,704
Television licensing 77,804 111,815 153,297 178,860
Home entertainment
Electronic sell-through 9,399 16,269 30,088 24,211
Physical distribution 6,958 20,863 14,358 32,069
Other 19,908 7,694 35,401 10,896
Ancillary 6,928 7,521 26,093 15,185
Total Film Content revenue $ 126,899 $ 171,206 $ 273,959 $ 276,925
Television Content
Television licensing $ 148,521 $ 120,485 $ 193,684 $ 165,334
Home entertainment
Electronic sell-through 1,700 3,723 6,063 8,595
Physical distribution 2,810 4,200 6,267 9,588
Other 498 575 1,097 797
Total Television Content revenue $ 153,529 $ 128,983 $ 207,111 $ 184,314
Media Networks
EPIX $ 118,855 $ 97,159 $ 225,002 $ 196,889
Other Channels 7,285 10,666 17,600 21,418
Total Media Networks revenue $ 126,140 $ 107,825 $ 242,602 $ 218,307
Total Revenue $ 406,568 $ 408,014 $ 723,672 $ 679,546
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
22
Note 2 – Revenue (Continued)
Contract Assets and Deferred Revenue
Contract assets relate to the Company’s conditional right to consideration for completed performance under the contract
(i.e. unbilled receivables). Amounts relate primarily to contractual payment holdbacks in cases in which the Company is
generally required to deliver additional episodes or seasons of television content in order to receive payment. Such
contract assets were immaterial at June 30, 2019 and January 1, 2019 and are therefore included in the balance of
accounts receivable for each period.
At June 30, 2019 and January 1, 2019, accounts receivable, contract assets and deferred revenue are as follows:
June 30,
2019 January 1,
2019 Addition
(Reduction)
Accounts receivable, net - current $ 578,284 $ 500,242 $ 78,042
Accounts receivable, net - non-current 125,619 138,888 (13,269 )
Deferred revenue - current 120,764 66,054 54,710
Deferred revenue - non-current 9,178 9,605 (427 )
At June 30, 2019 and January 1, 2019, deferred revenue primarily consisted of advances related to the Company’s
television licensing contracts under which the related content will be available in future periods.
Summarized Balance Sheet and Income Statement Comparison of New and Prior Revenue Recognition Guidance
The following tables presents the balance sheet and income statement line items impacted by the adoption of the new
revenue recognition guidance, which did not result in significant changes to the Company’s reported operating results
for the six month period ended June 30, 2019:
June 30, 2019
As Reported Impact of
Adoption Without Adoption
of New Guidance
Balance Sheet Information:
Assets
Accounts receivable, net - current $ 578,284 $ (6,764 ) $ 571,520
Accounts receivable, net - noncurrent 125,619 231 125,850
Film and television costs and program rights, net -
noncurrent
1,732,996 (1,687 ) 1,731,309
Investments in affiliates - noncurrent 60,165 148 60,313
Liabilities
Accrued participants’ share - current 86,152 (771 ) 85,381
Current income taxes payable 7,192 (266 ) 6,926
Advances and deferred revenue - current 120,764 965 121,729
Deferred income taxes payable - noncurrent 152,572 (1,845 ) 150,727
Equity
Accumulated other comprehensive loss (26,501 ) 20 (26,481 )
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
23
Note 2 – Revenue (Continued)
Three Months Ended June 30, 2019
As Reported Impact of
Adoption Without Adoption
of New Guidance
Statement of Income Information:
Revenues $ 406,568 $ (6,958 ) $ 399,610
Operating expense 262,108 149 262,257
Distribution and marketing expense 45,641 (106 ) 45,535
Operating income 24,463 (7,001 ) 17,462
Equity in net earnings of affiliates 1,260 (87 ) 1,173
Income (loss) before income taxes 4,996 (7,088 ) (2,092 )
Income tax benefit (714 ) 1,578 864
Net income (loss) 4,282 (5,510 ) (1,228 )
Six Months Ended June 30, 2019
As Reported Impact of
Adoption Without Adoption
of New Guidance
Statement of Income Information:
Revenues $ 723,672 $ (7,544 ) $ 716,128
Operating expense 467,673 995 468,668
Distribution and marketing expense 69,765 (106 ) 69,659
Operating income 39,964 (8,433 ) 31,531
Equity in net losses of affiliates (6,842 ) 148 (6,694 )
Loss before income taxes (8,719 ) (8,285 ) (17,004 )
Income tax benefit 874 2,110 2,984
Net loss (7,845 ) (6,175 ) (14,020 )
Note 3—Acquisition of Big Fish Entertainment
In June 2018, the Company acquired 100% of the issued and outstanding membership interests of Big Fish
Entertainment LLC (“Big Fish”). Big Fish is a pioneering producer of “live reality” unscripted content like A&E’s hit
show, Live PD, Live Rescue and Vet ER Live, plus additional unscripted content like Black Ink Crew for VH1 and
Hustle & Soul for WeTV, among other shows. As part of the acquisition, the Company paid $65.0 million in cash (or
$46.4 million net after $18.6 million of cash acquired) and provided an earnout that is payable to the sellers at future
measurement dates based on predefined EBITDA targets over a five year period. The total earnout payment may range
between zero and $145.0 million. The Company recorded a contingent liability equal to the estimated fair value of the
earnout as of the acquisition date, which totaled $78.6 million, and remeasures the carrying value of the contingent
liability at each reporting date. Any changes in the fair value of the contingent liability are classified within operating
income in the unaudited condensed consolidated statements of income. Increases in the fair value of the contingent
liability totaled $9.6 million for the six month period ended June 30, 2019.
For financial reporting purposes, beginning June 1, 2018, the Company has consolidated 100% of the revenue,
expenses, and net assets of Big Fish.
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
24
Note 3—Acquisition of Big Fish Entertainment (Continued)
Estimates of the fair value of the net assets of Big Fish were determined using a combination of methodologies, as
appropriate, depending on the type of asset acquired. Cash and cash equivalents, equipment and other assets were
valued at book value since their respective carrying value approximated fair value. Content-specific assets, including
produced programming, were valued primarily using Level 3 inputs, as defined in the fair value hierarchy, including
long-range cash flow projections and a discounted cash flow methodology using a discount rate based on a weighted-
average cost of capital. In addition, the Company recognized $23.4 million of other identifiable intangible assets, which
will be amortized over their respective estimated useful lives of 1.5 to 5 years, and $79.1 million of goodwill, none of
which is expected to be deductible for income tax purposes. Goodwill primarily reflects future cash flows associated
with the estimated long-term growth of Big Fish and the forecasted production of new unscripted television shows.
Transaction costs associated with the acquisition were immaterial and were expensed as incurred. The accounting
purchase price was allocated as follows (in thousands):
Amount
Cash and cash equivalents $ 18,572
Accounts receivable 1,034
Property and equipment, net 1,972
Prepaid expenses and other assets 214
Film and television costs 39,220
Goodwill 79,147
Other non-content intangible assets 23,400
Deferred tax asset 206
Total assets 163,765
Accounts payable and accrued expenses 4,227
Loan payable 200
Production obligations 13,358
Deferred revenue 2,380
Total liabilities 20,165
Equity value $ 143,600
Note 4—Goodwill and Other Non-Content Intangible Assets
As of June 30, 2019, the Company had goodwill of $902.0 million and other non-content intangible assets totaling
$486.1 million, net of accumulated amortization. Other non-content intangible assets of $425.8 million are subject to
amortization, and consist primarily of certain carriage, licensing and production agreements with remaining useful lives
ranging from less than one to 22.5 years. Additionally, aggregate trade name-related assets, valued at $60.3 million,
were identified and determined to have indefinite lives. For the three month periods ended June 30, 2019 and 2018, the
Company recorded amortization of identifiable intangible assets of $12.8 million and $12.7 million, respectively, and
during the six month periods ended June 30, 2019 and 2018, the Company recorded amortization of identifiable
intangible assets of $25.6 million and $24.9 million, respectively. Amortization expense for other intangible assets is
included in depreciation and non-content amortization in the unaudited condensed consolidated statements of income.
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
25
Note 5—Film and Television Costs and Program Rights
Film and television costs and program rights, net of amortization, are summarized as follows (in thousands):
June 30, December 31,
2019 2018
Theatrical productions:
Released $ 772,088 $ 750,545
Completed not released – 15,905
In production 204,697 118,972
In development 21,587 36,637
Total theatrical productions 998,372 922,059
Television programs:
Released 290,903 289,667
Completed not released 1,228 –
In production 176,997 122,672
In development 15,075 9,298
Total television programs 484,203 421,637
Media networks:
Licensed program rights 374,448 393,521
In development 171 –
Total media networks 374,619 393,521
Film and television costs and program rights, net $ 1,857,194 $ 1,737,217
Less: Current portion of licensed program rights (124,198) (131,930)
Noncurrent portion $ 1,732,996 $ 1,605,287
Based on the Company’s estimates of projected gross revenue as of June 30, 2019, approximately 25% of completed
film and television costs, excluding licensed program rights, are expected to be amortized over the next 12 months.
Approximately 80% of unamortized film and television costs for released titles, excluding costs accounted for as
acquired film and television libraries and excluding licensed program rights, are expected to be amortized over the next
three fiscal years.
As of June 30, 2019 and December 31, 2018, unamortized film and television costs accounted for as acquired film and
television libraries were $0.6 billion and $0.7 billion, respectively. The Company’s film and television costs accounted
for as acquired film and television libraries are being amortized under the individual-film-forecast method in order to
properly match the expected future revenue streams and have an average remaining life of approximately 7 years as of
June 30, 2019.
For the media networks business, licensed program rights include the costs to acquire film and television content to
exhibit on EPIX.
During the six month periods ended June 30, 2019 and 2018 the Company recorded $6.1 million and $6.7 million,
respectively, of fair value adjustments to certain titles included in film and television costs. These fair value adjustments
were included in operating expenses in the unaudited condensed consolidated statements of income. The estimated fair
values were calculated using Level 3 inputs, as defined in the fair value hierarchy, including long-range projections of
revenue, operating and distribution expenses, and a discounted cash flow methodology using discount rates based on a
weighted-average cost of capital.
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
26
Note 6—Fair Value Measurements
A fair value measurement is determined based on the assumptions that a market participant would use in pricing an
asset or liability. A three-tiered hierarchy draws distinctions between market participant assumptions based on:
(i) observable inputs such as quoted prices in active markets for identical assets or liabilities (Level 1), (ii) inputs other
than quoted prices for similar assets or liabilities in active markets that are observable either directly or indirectly
(Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in
the determination of fair value (Level 3). The following table presents information about the Company’s financial assets
and liabilities carried at fair value on a recurring basis at June 30, 2019 (in thousands):
Fair Value Measurements at June 30, 2019 using
Description Balance Level 1 Level 2 Level 3
Assets:
Investments $ 1,055 1,055 – –
Liabilities:
Deferred compensation plans (1,055) (1,055) – –
Financial instruments (19,322) – (19,322) –
Total $ (19,322) $ – $ (19,322) $ –
The following table presents information about the Company’s financial assets and liabilities carried at fair value on a
recurring basis at December 31, 2018 (in thousands):
Fair Value Measurements at December 31, 2018 using
Description Balance Level 1 Level 2 Level 3
Assets:
Investments $ 946 $ 946 $ – $ – Financial instruments 3,237 – 3,237 –
Liabilities:
Deferred compensation plan (946) (946) – – Financial instruments (8,671) – (8,671)
Total $ (5,434) $ – $ (5,434) $ –
Cash equivalents consist primarily of money market funds with original maturity dates of three months or less, for
which fair value was determined based on quoted prices of identical assets that are trading in active markets.
Investments are included in other noncurrent assets in the unaudited condensed consolidated balance sheets and are
comprised of money market funds, mutual funds and other marketable securities that are held in deferred compensation
plans. The related deferred compensation plan liabilities are included in noncurrent accrued liabilities in the unaudited
condensed consolidated balance sheets. The fair value of these assets and the deferred compensation plan liabilities
were determined based on quoted prices of identical assets that are trading in active markets.
Financial instruments at June 30, 2019 and December 31, 2018 primarily reflect the fair value of outstanding interest
rate swaps or similar arrangements with certain counterparties entered into by the Company to reduce its exposure to
variable interest rates. The fair value of such interest rate swaps was included in other current liabilities and other
current assets in the condensed consolidated balance sheets at June 30, 2019 and December 31, 2018, respectively, and
was determined using a market-based approach.
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
27
Note 6—Fair Value Measurements (Continued)
The Company also had certain outstanding foreign currency exchange forward contracts, which were included in other
current liabilities in the condensed consolidated balance sheets at June 30, 2019 and December 31, 2018. The fair value
of these instruments was determined using a market-based approach.
Note 7—Investments in Affiliates
Investments in unconsolidated affiliates are summarized as follows (in thousands):
June 30, December 31,
2019 2018
Non-equity method investments $ 41,824 $ 30,624
Equity method investments:
United Artists Releasing (formerly Mirror Releasing, LLC) 18,341 28,375
$ 60,165 $ 58,999
United Artists Releasing (formerly Mirror Releasing, LLC). In October 2017, MGM formed a joint venture with
Annapurna Pictures to control and finance the U.S. theatrical marketing and distribution of certain MGM, Annapurna
and third party films. In 2018, qualifying films for MGM and Annapurna were distributed by the joint venture under the
respective company banners, while third party films were distributed under the banner “Mirror Releasing.” Starting in
March 2019, films were distributed under each partner’s respective banner and the “United Artists Releasing” banner,
and films produced under the Orion Pictures banner were distributed by this joint venture. The Company owns less than
50% of this joint venture and its obligation to absorb potential losses of the joint venture is limited. Therefore, the
Company accounts for its share of certain profits and losses of the joint venture under the equity method of accounting.
During the three and six month periods ended June 30, 2019, equity in net earnings (losses) of affiliates in the unaudited
condensed consolidated statement of income included $7.5 and $15.6 million of net losses, respectively, from the
Company’s interest in the joint venture, net of intercompany eliminations. During the three and six month periods ended
June 30, 2018, equity in net earnings (losses) of affiliates included $0.6 million of net earnings and $6.7 million of net
losses, respectively, from the Company’s interest in the joint venture, net of intercompany eliminations. Capital
contributions to the joint venture including accruals totaled $2.5 million and $2.1 million, respectively, during the three
month periods ended June 30, 2019 and 2018, and $5.6 million and $4.1 million, respectively, during the six month
periods ended June 30, 2019 and 2018.
Telecine Programacao de Filmes Ltda. MGM has an equity investment in Telecine Programacao de Filmes Ltda.
(“Telecine”), a joint venture with Globo Comunicacao e Participacoes S.A., Paramount, Twentieth Century Fox and
NBC Universal, Inc. that operates a pay television network in Brazil. The Company does not consolidate Telecine, but
rather accounts for its investment in Telecine under the measurement alternative since there is no readily determinable
fair value. Under the measurement alternative, the investment is accounted for at cost less impairment, if any, and
adjusted for any observable price changes. As such, the Company’s share of the net income of Telecine is not included
in the Company’s unaudited condensed consolidated statements of income. However, the Company recognizes income
from its investment in Telecine when it receives dividends.
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
28
Note 7—Investments in Affiliates (Continued)
Non-Equity Method Investments. Non-equity method investments include investments of 20% or less, over which the
Company has no significant influence, that do not have a readily determinable fair value. Such investments are recorded
at cost less impairment, if any, and adjusted for any observable price changes. In accordance with ASU 2016-01 (see
Note 1), during the three and six months ended June 30, 2019, the Company recognized an unrealized gain of $7.7
million related to one of its non-equity method investments, which was included in equity in net losses (earnings) of
affiliates in the unaudited condensed consolidated statements of income.
During the three and six month periods ended June 30, 2019, the Company received $1.1 million of dividend income
from non-equity method investments. Dividend income from non-equity method investments totaled $2.3 million
during the three and six month periods ended June 30, 2018. Such amounts were included in equity in net losses
(earnings) of affiliates in the unaudited condensed consolidated statements of income.
Note 8—Property and Equipment
Property and equipment are summarized as follows (in thousands):
June 30, December 31,
2019 2018
Furniture, fixtures and equipment $ 66,252 $ 57,672
Leasehold improvements 19,869 18,517
86,121 76,189
Less accumulated depreciation and non-content amortization (51,801) (45,268)
$ 34,320 $ 30,921
Note 9—Corporate Debt
Corporate debt is summarized as follows (in thousands):
June 30, December 31,
2019 2018
Revolving credit facility $ 815,000 $ 685,000
1L Term Loan, net of discount 395,319 397,166
2L Term Loan, net of discount 396,497 396,247
Deferred financing costs (9,285) (10,002)
$ 1,597,531 $ 1,468,411
Less: Current portion (4,000)
(4,000)
Noncurrent portion $ 1,593,531 $ 1,464,411
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
29
Note 9—Corporate Debt (Continued)
Amended Credit Facility. In July 2018, the Company entered into a seven-year $400.0 million first lien term loan (the
“1L Term Loan”) and an eight-year $400.0 million second lien term loan (the “2L Term Loan”). The 1L Term Loan was
issued at a discount of 50 basis points, bears interest at 2.50% over London Interbank Offered Rate (“LIBOR”) and
matures on July 3, 2025. The 2L Term Loan was issued at a discount of 100 basis points, bears interest at 4.50% over
LIBOR and matures on July 3, 2026. The face value of both the 1L and 2L Term Loans approximated fair value at June
30, 2019. In addition, the Company amended its prior senior secured revolving credit facility (the “Prior Revolving Credit
Facility”) to, among other things, increase the total commitments, lower the interest rate and modify certain covenants
and components of our borrowing base (“Amended Revolving Credit Facility”). The Company’s Amended Revolving
Credit Facility currently has $1.8 billion of total commitments, bears interest at 1.75% over LIBOR and matures on July
3, 2023 (all-in rate was 4.15% at June 30, 2019). Proceeds from the issuance of these terms loans and the Amended
Revolving Credit Facility were primarily used to prepay the Company’s prior $850.0 million senior secured term loan
(“Prior Term Loan”). To reduce its exposure on variable interest rates, the Company had $785.0 million in interest rate
swap contracts outstanding at June 30, 2019 that bore interest at a fixed blended rate of 2.22% (see Note 10). Interest
revenue for such swap contracts totaled $0.5 million and $1.1 million for the three and six month periods ended June 30,
2019, respectively, which was included in contractual interest expense in the unaudited condensed consolidated statement
of income.
The Company incurred $4.7 million and $5.5 million in fees and other costs related to the 1L and 2L Term Loans,
respectively, which were deferred and presented as a direct deduction from the related debt liabilities in the unaudited
condensed consolidated balance sheets. Aggregate deferred financing fees totaled $5.2 million for the 1L Term Loan.
Deferred financing fees and accretion of the debt discounts are being amortized over the terms of the 1L and 2L Term
Loans, respectively, using the effective-interest method. During the three month period ended June 30, 2019, the
Company recorded interest expense for the amortization of the 1L Term Loan and 2L Term Loan deferred financing costs
of $0.2 million each. Interest expense for the amortization of the 1L Term Loan and 2L Term Loan deferred financing
costs totaled $0.4 million and $0.3 million, respectively, for the six month period ended June 30, 2019. Interest expense
recorded for the accretion of the respective discounts for the 1L Term Loan and 2L Term Loan totaled $0.1 million each
during the three month period ended June 30, 2019. For the six month period ended June 30, 2019, such amounts totaled
$0.2 million and $0.3 million for the 1L Term Loan and 2L Term Loan, respectively.
Separately, the Company incurred $6.7 million in fees and other costs related to the Amended Revolving Credit Facility,
which were deferred and included in other assets in the unaudited condensed consolidated balance sheet. Aggregate
deferred financing costs of $20.4 million are being amortized over the term of the Amended Revolving Credit Facility
using the straight-line method. During the three month periods ended June 30, 2019 and 2018, the Company recorded
interest expense for the amortization of deferred financing costs of $1.0 million and $0.7 million, respectively. Such
amounts totaled $2.0 million and $1.3 million, respectively, for the six month periods ended June 30, 2019 and 2018.
The availability of funds under the Amended Revolving Credit Facility is limited by a borrowing base calculation and
reduced by outstanding letters of credit, if any. As of June 30, 2019, there was $815.0 million drawn against the
Amended Revolving Credit Facility and there were no outstanding letters of credit. Currently, the $985.0 million of
remaining funds under our Amended Revolving Credit Facility are entirely available to the Company. Lenders under the
Amended Revolving Credit Facility have a senior security interest in substantially all the assets of MGM, with certain
exceptions. At June 30, 2019, the Company was in compliance with all applicable covenants and there were no events of
default.
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
30
Note 9—Corporate Debt (Continued)
The Company incurs an annual commitment fee equal to 0.375% per annum. Payments are made quarterly based on the
average daily amount undrawn during the period. During the three and six month periods ended June 30, 2019, the
Company incurred commitment fees of $0.9 million and $1.9 million, respectively. Separately, during the three and six
month periods ended June 30, 2019, the Company recorded $8.9 million and $16.8 million of interest expense for
borrowings under the Amended Revolving Credit Facility. In addition, during the three month period ended June 30,
2019, the Company recorded $5.0 million and $7.1 million of interest expense for the 1L Term Loan and 2L Term Loan,
respectively. Such amounts totaled $10.0 million and $14.1 million of interest expense for the 1L Term Loan and 2L
Term Loan, respectively, for the six month period ended June 30, 2019. No interest expense was recorded for either the
1L Term Loan or the 2L Term Loan during the three and six month periods ended June 30, 2018. Commitment fees and
interest expense are included in contractual interest expense in the unaudited condensed consolidated statements of
income.
Prior Credit Facility. In May 2017, and in connection with the Company’s acquisition of EPIX, the Company amended
its $1.0 billion senior secured revolving credit facility to, among other things, add a senior secured term loan (the “Prior
Term Loan”). In July 2018, the Prior Revolving Credit Facility was amended and the Prior Term Loan was prepaid, as
discussed above. The Company’s Prior Revolving Credit Facility had $1.0 billion of total revolving commitments and the
Prior Term Loan had $850.0 million of commitments. Both the prior senior secured revolving credit facility and Prior
Term Loan had a contractual interest rate of LIBOR plus 2.00% and a maturity date of May 11, 2022. Approximately
50% of the Prior Term Loan bore interest at LIBOR plus 2.00%, while the remaining 50% bore interest at a fixed blended
rate of 3.68% due to interest rate swap contracts outstanding prior to the prepayment in July 2018 (see Note 10).
Under the Prior Revolving Credit Facility, the Company incurred an annual commitment fee of either 0.375% or 0.50%
per annum, depending on the percentage of total commitments undrawn each day on the Prior Revolving Credit Facility.
Payments were made quarterly based on the average daily amount undrawn during the period. During the three and six
month periods ended June 30, 2018, the Company incurred commitment fees of $0.8 million and $1.8 million,
respectively. Separately, during the three and six month periods ended June 30, 2018, the Company recorded $3.2
million and $5.2 million of interest expense for borrowings under the Prior Revolving Credit Facility. In addition,
during the three and six month periods ended June 30, 2018, the Company recorded $8.2 million and $15.9 million of
interest expense for the Prior Term Loan. During the three and six month periods ended June 30, 2018, the Company
recorded interest expense for the amortization of the Prior Term Loan deferred financing costs of $0.3 million and $0.6
million, respectively. Commitment fees and interest expense were included in contractual interest expense in the
unaudited condensed consolidated statements of income.
Note 10—Financial Instruments
The Company transacts business globally and is subject to market risks resulting from fluctuations in foreign currency
exchange rates. In certain instances, the Company enters into foreign currency exchange forward contracts in order to
reduce exposure to fluctuations in foreign currency exchange rates that affect certain anticipated foreign currency cash
flows. Such contracts generally have maturities between one and 16 months. As of June 30, 2019, the Company had
three outstanding foreign currency exchange forward contracts primarily relating to anticipated production and
distribution-related cash flows that qualified for hedge accounting. Such contracts were carried at fair value and
included in other liabilities in the unaudited condensed consolidated balance sheet for the six months ended June 30,
2019. Separately, the Company may enter into interest rate swaps or similar arrangements with certain counterparties to
reduce its exposure to variable interest rates. Such contracts generally have maturities between one and five years. As of
June 30, 2019, the Company had several interest rate swap contracts outstanding, which were carried at fair value and
included in other liabilities in the unaudited condensed consolidated balance sheet. All foreign currency exchange
forward contracts and interest rate swap contracts designated for hedge accounting were deemed effective at June 30,
2019. As such, changes in the fair value of such contracts were included in accumulated other comprehensive loss in the
unaudited condensed consolidated balance sheet.
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
31
Note 10—Financial Instruments (Continued)
During the three and six month periods ended June 30, 2019, the Company recorded $8.3 million and $10.7 million,
respectively, of net unrealized losses (net of tax) relating to the change in fair value of such contracts in accumulated
other comprehensive loss. At June 30, 2019, $3.3 million of net unrealized losses included in accumulated other
comprehensive income (loss) are expected to be recognized into earnings within the next 12 months. During the three
and six month periods ended June 30, 2019, the Company reclassified $0.1 million of losses out of accumulated other
comprehensive loss and into earnings. Such amounts were included in operating expenses with the related tax effect
recorded in the income tax provision in the unaudited condensed consolidated statements of income.
As of June 30, 2018, the Company had several foreign currency exchange forward contracts and interest rate swap
contracts outstanding, which were carried at fair value and included in other liabilities and other assets, respectively, in
the unaudited condensed consolidated balance sheet. All foreign currency exchange forward contracts and interest rate
swap contracts designated for hedge accounting were deemed effective at June 30, 2018 and as such, changes in the fair
value of all other contracts were included in accumulated other comprehensive income in the unaudited condensed
consolidated balance sheet. During the three month period ended June 30, 2018, the Company recorded $2.1 million of
net unrealized losses (net of tax) relating to the change in fair value of such contracts in accumulated other
comprehensive income. During the six month period ended June 30, 2018, the Company recorded $2.3 million of net
unrealized gains (net of tax) relating to the change in fair value of such contracts in accumulated other comprehensive
income.
Note 11—MGM Holdings Inc. Stockholders’ Equity
Common Stock. The Company is authorized to issue 110,000,000 shares of Class A common stock, $0.01 par value, and
110,000,000 shares of Class B common stock, $0.01 par value. As of June 30, 2019 and December 31, 2018,
78,952,883 and 78,879,116 aggregate shares of common stock were issued, respectively, and 44,801,133 and
44,760,170 aggregate shares of common stock were outstanding, all of which were Class A common stock.
Preferred Stock. The Company is authorized to issue up to 10,000,000 shares of Preferred Stock, $0.01 par value. As of
June 30, 2019, no shares of Preferred Stock were issued or outstanding.
Treasury Stock. During the six months ended June 30, 2019, the Company completed repurchases of 93,849 shares of
its Class A common stock at a weighted-average price of $78.72 per share for a total of $7.4 million, which included
61,045 shares that the Company committed to repurchasing at December 31, 2018. Excluding amounts committed at
December 31, 2018, the Company repurchased 32,804 additional shares of its Class A common stock at a weighted-
average price of $71.00 per share for a total of $2.3 million.
During the six months ended June 30, 2018, the Company completed repurchases of 3,425,934 shares of its Class A
common stock at a weighted-average price of $101.16 per share for a total of $346.6 million, which included 225,500
shares that the Company committed to repurchasing at December 31, 2017. Excluding amounts committed at December
31, 2017, the Company repurchased 3,200,434 additional shares of its Class A common stock at a weighted-average
price of $101.10 per share for a total of $323.6 million, which included, among other repurchases, 274,392 shares of
common stock and 3,883,529 stock options that were equivalent to 2,302,572 shares of common stock on a net basis,
previously held by our former CEO.
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
32
Note 11—MGM Holdings Inc. Stockholders’ Equity (Continued)
Stock Incentive Plan. The Company’s stock incentive plan (the “Stock Incentive Plan”) allows for the granting of stock
awards aggregating not more than 12,988,234 shares outstanding at any time. Awards under the Stock Incentive Plan
are generally not restricted to any specific form or structure and may include, without limitation, non-qualified stock
options, restricted stock awards and stock appreciation rights (collectively, “Awards”). Awards may be conditioned on
continued employment, have various vesting schedules and have accelerated vesting and exercisability provisions in the
event of, among other things, a change in control of the Company. All outstanding stock options under the Stock
Incentive Plan have been issued at or above market value and generally vest over a period of five years.
Stock option activity under the Stock Incentive Plan was as follows:
The fair value of option grants was estimated using the Black-Scholes option pricing model. Total stock-based
compensation expense recorded under the Stock Incentive Plan was $3.4 million and $1.5 million during the three
month periods ended June 30, 2019 and 2018, respectively, and $7.8 million and $5.1 million during the six month
periods ended June 30, 2019 and 2018. As of June 30, 2019, total stock-based compensation expense related to non-
vested awards not yet recognized under the Stock Incentive Plan was $20.6 million, which is expected to be recognized
over a weighted-average period of 1.34 years.
Note 12—Income Taxes
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax
Cuts and Jobs Act (“Tax Reform”). For the year ended December 31, 2017, the Company recorded a provisional net tax
benefit of $190.5 million related to the remeasurement of its net deferred tax liability using the new U.S. federal
corporate tax rate of 21% and recorded a provisional amount for the one-time transitional tax liability for our foreign
subsidiaries of approximately $2.3 million. The provisional amounts recorded in 2017 were finalized in 2018. For the
year ended December 31, 2018, the Company recorded a net tax benefit of $5.4 million. This net tax benefit included
$1.3 million related to the remeasurement of its state deferred tax balances, $2.3 million for the transition tax since the
Company determined it owed zero transition tax liability, and $1.8 million as the remeasurement of its net deferred tax
liability was updated as a result of the 2017 U.S. federal tax return filing.
The Company recorded an income tax provision of $0.7 million and benefit of $38.4 million during the three month
periods ended June 30, 2019 and 2018, respectively, and a benefit of $0.9 million and $39.7 million during the six
month periods ended June 30, 2019 and 2018, respectively. At the end of each interim period, the Company computes
the year-to-date tax provision by applying the estimated annual effective tax rate to year-to-date pretax book income.
The income tax provision and/or benefit recorded during the three and six month periods ended June 30, 2019 and 2018
included a provision for federal and state income taxes that reflected standard United States statutory income tax rates,
as well as foreign remittance taxes attributable to international distribution revenues. Foreign remittance taxes are
creditable against U.S. federal income taxes.
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
33
Note 12—Income Taxes (Continued)
At June 30, 2019, the Company and its subsidiaries had net operating loss carryforwards for United States federal tax
purposes of $0.3 billion, which will be available to reduce future taxable income. The net operating loss carryforwards
expire between the years ending December 31, 2029 and December 31, 2030, and are subject to limitation on use under
Section 382 of the Internal Revenue Code. In addition, the Company has net operating loss carryforwards for California
state tax purposes of $0.5 billion, which will expire between the years ending December 31, 2028 and December 31,
2030. As a result of the utilization of such net operating loss carryforwards, cash paid for income taxes was significantly
lower than the Company’s income tax provision.
The following is a summary reconciliation of the federal tax rate to the effective tax rate:
Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
Federal statutory tax rate on pre tax
book income 21% 21% 21% 21%
State taxes, net of federal income tax
benefit 2 1 2 1
Changes in uncertain tax positions 5 – (16) –
Foreign taxes, net of federal income
tax benefit – – – –
Change in valuation allowance 1 1 (3) 36
Net income attributable to
noncontrolling interests 1 5 (1) 5
Other permanent differences (16) (184) 7 (227)
Effective tax rate 14% (156)% 10% (164)%
State Taxes, Net of Federal Income Tax Benefit. The state tax rate for the three and six month periods ended June 30,
2019 increased as a result of the Company’s increased business activities in new state jurisdictions.
Changes in Uncertain Tax Positions. The Company accrued interest for the three and six month periods ended June 30,
2019 on prior year uncertain tax positions.
Foreign Taxes, Net of Federal Income Tax Benefit. The Company recognized an income tax benefit for foreign taxes for
the three and six months ended June 30, 2019 and 2018. This income tax benefit resulted from filing an election for tax
years beginning in 2011 to claim foreign tax credits against federal income taxes instead of recognizing a deduction for
foreign taxes.
Change in Valuation Allowance. The Company recorded a provisional amount for the six month period ended June 30,
2018 related to the change in valuation allowance as a result of the remeasurement of its deferred taxes related to Tax
Reform.
Other Permanent Differences. Other permanent differences for the three and six month periods ended June 30, 2019 in
the federal tax rate reconciliation above primarily included the recording of excess tax benefits from share-based
payments. Other permanent differences for the three and six month periods ended June 30, 2018 in the federal tax rate
reconciliation above primarily include the recording of excess tax benefits from share-based payments and a provisional
amount related to the remeasurement of the Company’s deferred taxes as a result of Tax Reform.
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
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Note 13—Retirement Plans
Components of net periodic pension cost were as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
Service cost on projected benefit obligation $ – $ 52 $ – $ 104
Interest cost on projected benefit obligation 161 152 322 304
Expected return on plan assets (86) (153) (172) (307)
Net actuarial loss 16 15 32 31
Net periodic pension expense $ 91 $ 66 $ 182 $ 132
Following adoption of ASU 2017-07 (see Note 1), the Company reclassified $0.1 million of other pension costs from
general and administrative expenses to other expense, net in the unaudited condensed consolidated statements of income
for each of the three month periods ended June 30, 2019 and 2018. Such reclassifications totaled $0.2 million and $0.1
million for the six month periods ended June 30, 2019 and 2018, respectively.
No contributions were made to the Plan during the three and six month periods ended June 30, 2019 and 2018. The
Company does not expect to make any required or discretionary contributions to the Plan during the year ending
December 31, 2019.
Note 14—Other Comprehensive Income (Loss)
Components of accumulated other comprehensive income (loss) were as follows (in thousands):
Unrealized
Gain (Loss)
on
Securities
Unrealized
Loss on
Derivative
Instruments
Retirement
Plan
Adjustments
Foreign
Currency
Translation
Adjustments
Accumulated
Other
Comprehensive
Loss
Balance, January 1, 2019 $ (33) $ (6,173) $ (1,248) $ (3,652) $ (11,106)
Current period
comprehensive
income 102 (20,754) 182 477 (19,993)
Income tax effect (24) 4,773 (42) (109) 4,598
Balance, June 30, 2019 $ 45 $ (22,154) $ (1,108) $ (3,284) $ (26,501)
MGM Holdings Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
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Note 15—Commitments and Contingencies
Litigation. Various legal proceedings involving alleged breaches of contract, copyright infringement and other claims
are now pending, which the Company considers routine to its business activities. The Company has provided an accrual
for pending litigation as of June 30, 2019, for which an outcome is probable and reasonably estimable. Management
believes that the outcome of any pending claim or legal proceeding in which the Company is currently involved will not
materially affect the Company’s unaudited condensed consolidated financial statements.
Other Commitments. The Company has various other commitments entered into in the ordinary course of business
relating to corporate debt agreements, creative talent and employment agreements, non-cancelable operating leases,
contractual marketing and other contractual obligations under co-production arrangements. Following its full acquisition
of EPIX, the Company has commitments related to program rights, which represent contractual commitments under
programming license agreements related to film and television content that is not available for exhibition until a future
date. Where necessary, the Company has provided an accrual for such amounts as of June 30, 2019.
Note 16—Supplementary Cash Flow Information
The Company paid interest of $21.5 million and $12.7 million during the three month periods ended June 30, 2019 and
2018, respectively, and $41.5 million and $23.4 million during the six month periods ended June 30, 2010 and 2018,
respectively
The Company paid taxes, primarily foreign remittance taxes, of $3.7 million and $0.8 million during the three month
periods ended June 30, 2019 and 2018, respectively, and $7.0 million and $4.9 million during the six month periods
ended June 30, 2019 and 2018, respectively. In addition, the Company received a net federal income tax refund of $21.8
million during the three month and six month periods ended June 30, 2019.
36
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our unaudited condensed
consolidated financial statements and the related notes thereto and other information contained elsewhere in this
report. This discussion and analysis also contains forward-looking statements regarding the industry outlook and
our expectations regarding the performance of our business. These forward-looking statements are subject to
numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in the section
entitled “Forward-Looking Statements.” Our actual results may differ materially from those contained in or
implied by any forward-looking statements.
Sources of Revenue
Our principal sources of revenue include the exploitation of film and television content through traditional
distribution platforms, including theatrical, home entertainment and television, with an increasing contribution from
digital distribution platforms in existing and emerging markets. In addition, we recognize significant affiliate and
SVOD distribution revenue from our distribution of EPIX.
Film and Television Content
Our film content is exploited through a series of domestic and international distribution platforms for
periods of time, or windows, during which such exploitation is frequently exclusive against other distribution
platforms for negotiated time periods. Typically, a film’s release begins with its theatrical exhibition window,
which may run for a period of one to three months. Theatrical marketing costs are incurred prior to and during the
theatrical window in an effort to create public awareness of a film and to help generate consumer interest in the
film’s subsequent home entertainment and television windows. Following the theatrical window, a film is generally
first made available (i) for physical (DVD and Blu-ray discs) home entertainment and EST, and in some cases
transactional VOD, approximately three to six months after initial theatrical release; (ii) for the first pay television
window, including SVOD platforms, approximately nine to twelve months after initial theatrical release; and (iii) for
basic cable and syndication, approximately 24 to 36 months after initial theatrical release, depending on the territory.
We generally recognize an increase in revenue with respect to a film when it initially enters each of these windows.
The foregoing release pattern may not be applicable to every film, and continues to change based on consumer
preferences and the emergence of digital distribution platforms.
In addition, we produce television content for initial broadcast on television networks, cable networks,
premium subscription services and digital platforms. Following its initial airing, television content is typically
licensed for further television exploitation internationally, and, in some cases, made available for EST and home
entertainment distribution worldwide. Successful scripted television series, which typically include individual series
with four or more seasons, may be licensed for off-network exhibition in the U.S. (including in syndication and to
SVOD services, such as Amazon, Hulu and Netflix). We generally recognize an increase in revenue with respect to
television content when (and if) it is initially distributed in each of these windows. Revenue for unscripted content
may include executive producer and other production services fees, as well as rankings/ratings bonuses, product
integration and revenue from tape or format sales. Revenue from executive producer and other production services
fees, as well as product integration, are recognized upon delivery, and revenue for rankings/ratings bonuses and our
share of tape or format sales is typically recognized when such amounts are estimable.
We generally recognize a substantial portion of the revenue generated by film and television content as a
result of its initial passage through the abovementioned windows. We continue to recognize revenue for our content
after initial passage through the various windows. During this subsequent time period, we may earn revenue
simultaneously from multiple distribution methods including new and emerging digital distribution platforms.
Our film and television content is distributed worldwide. For the year ended December 31, 2018, we
derived approximately 42% of our total consolidated revenue from international sources. Revenue from
international sources fluctuates year-to-year and is dependent upon several variables including our release schedule,
the timing of international theatrical and home entertainment release dates, the timing of television availabilities, the
relative performance of individual feature films and television content and foreign exchange rates.
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Other sources of revenue for our film and television content include various ancillary revenue, primarily
consisting of the licensing of intellectual property rights for use in interactive games and consumer products, as well
as music revenue from the licensing of publishing, soundtrack, master use and synchronization rights to various
compositions featured in our film and television content.
Media Networks
Our Media Networks segment consists of EPIX and our other wholly-owned and joint venture broadcast
and cable networks, which currently include an MGM-branded channel in the U.S., MGM HD and several multicast
networks including ThisTV, Comet TV, LightTV and Charge!.
Revenue for EPIX is derived from affiliation agreements with U.S. multichannel video programming
distributors (“MVPDs”), virtual MVPDs and OTT distribution through apps and online platforms, as well as fees
associated with SVOD distribution arrangements. Affiliate revenue from cable television and satellite operators,
telecommunication companies and online video distributors is recognized in the period during which the channel
services are provided. Fees associated with SVOD distribution are recognized upon the availability of programming
to the distributor.
Other sources of revenue for our Media Networks include cable subscriber fees and advertising sales
associated with our broadcast and cable networks.
Cost Structure
Within our results of operations our expenses primarily include operating, distribution and marketing, and
general and administrative (“G&A”) expenses.
Operating Expenses
Operating expenses primarily consist of film and television cost amortization expenses, accruals of talent
participations, residuals and co-production share obligations (collectively, “P&R”) for film and television content,
and programming cost amortization expenses for our Media Networks.
Film and television cost amortization expense includes the amortization of content production and
acquisition costs, plus certain fair value adjustments, including step-up amortization expense and purchase
accounting adjustments (both of which are defined and discussed below).
Talent participation costs represent contingent compensation that may be payable to producers, directors,
writers and principal cast based on the performance of feature film and television content. Residual costs represent
compensation that may be payable to various unions or guilds, such as the Directors Guild of America, Screen
Actors Guild-American Federation of Television and Radio Artists, and Writers Guild of America, and are typically
based on the performance of feature film and television content in certain markets. Co-production share expenses
represent profit sharing costs that may be payable to our co-production partners and other intellectual property rights
holders based on the performance of feature film and television content.
Programming cost amortization expense includes the amortization of production, acquisition and licensing
costs for programming on our Media Networks, as well as certain fair value adjustments, including intercompany
programming cost amortization expense (which is defined and discussed below).
In addition, we include in operating expenses the cost of duplicating physical prints, creating digital cinema
packages, and replicating DVDs and Blu-ray discs, as well as personnel costs that are directly related to the
operation of our Media Networks.
Film and Television Costs. Film and television costs include the costs of acquiring rights to content, the
costs associated with producers, directors, writers and actors, and the costs involved in producing the content, such
as studio rental, principal photography, sound and editing. Like film studios, we generally fund our film and
television costs with cash flow from operating activities, and/or bank borrowings and other financing methods.
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From time to time, production overhead and related financing costs may be capitalized as part of film and television
production costs.
We amortize film and television costs, including production costs, capitalized interest and overhead, and
any related fair value adjustments, and we accrue P&R, using the individual-film-forecast method (“IFF method”).
Under the IFF method such costs are charged against earnings, and included in operating expenses, in the ratio that
the current period’s gross revenue bears to management’s estimate of total remaining “ultimate” gross revenue as of
the beginning of the current period. “Ultimates” represent estimates of revenue and expenses expected to be
recognized over a period not to exceed ten years from the initial release or broadcast date, or for a period not to
exceed 20 years for acquired film and television libraries.
Step-up Amortization Expense. A significant portion of the carrying value of our film and television
inventory consists of non-cash fair value adjustments. These fair value adjustments do not reflect a cash investment
to produce or acquire content, but rather, fair value accounting adjustments recorded at the time of various company
transactions and events. As such, our film and television inventory carrying value contains (a) unamortized cash
investments to produce or acquire content and (b) unamortized non-cash fair value adjustments. We amortize our
aggregate film and television inventory costs in accordance with the applicable accounting standards, and our
aggregate amortization expense is higher than it otherwise would be had we not recorded non-cash fair value
adjustments to “step-up” the carrying value of our film and television inventory costs. Unamortized fair value
adjustments were approximately $477 million at June 30, 2019 and are expected to be amortized using the IFF
method over an average amortization period of 6.5 years. We refer to the amortization of these fair value
adjustments as “Step-up Amortization Expense” and disclose it separately to help the users of our financial
statements better understand the components of our operating expenses.
Purchase Accounting Adjustments. The accounting for business combinations required us to record fair
value accounting adjustments to initially state the content assets of UAMG, LLC (“United Artists Media Group” or
“UAMG”), Evolution and Big Fish at fair value as of January 2016, July 2017 and June 2018, respectively. As a
result, the carrying value of our film and television inventory include fair value adjustments to the content assets of
UAMG, Evolution and Big Fish that result in non-operational amortization expense that will temporarily cause
higher film and television amortization expense than we would otherwise record. We separately record this non-
operational amortization expense and include it within “Purchase Accounting Adjustments,” which is added back in
our calculation of Adjusted EBITDA to help the users of our financial statements better understand the fundamental
operating performance of the Company. A substantial portion of the Purchase Accounting Adjustments for UAMG
and Evolution had been expensed as of December 31, 2018, and amounts for years thereafter are primarily related to
fair value accounting adjustments for Big Fish, which are estimated to be substantially amortized by December 31,
2019.
Intercompany Programming Cost Amortization. Prior to MGM’s acquisition of EPIX in May 2017,
MGM recorded film cost amortization expense related to its revenue from licensing content to EPIX. Due to the
accounting requirements for business combinations, on May 11, 2017 we recorded intercompany programming cost
assets on the balance sheet of EPIX related to these same licensed rights even though these represent intercompany
assets for which amortization expense was already recorded through the pre-acquisition income statement of MGM.
As a result, our operating results for periods occurring subsequent to the acquisition will include higher
programming cost amortization expense related to these intercompany programming cost assets, which would not
otherwise be recorded if such licenses occurred subsequent to the acquisition and consolidation of EPIX. We
separately record this programming cost amortization expense and include it within “Intercompany Programming
Cost Amortization,” which is added back in our calculation of Adjusted EBITDA to help the users of our financial
statements better understand the consolidated operating performance of the Company excluding the impact of
intercompany expenses.
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Distribution and Marketing Expenses
Distribution and marketing expenses generally consist of theatrical advertising costs, marketing costs for
other distribution windows and our Media Networks, third party distribution services fees for various distribution
activities (where applicable), distribution expenses such as delivery costs, and other exploitation costs. Advertising
costs associated with a theatrical feature film release are significant and typically involve large scale media
campaigns, the cost of developing and producing marketing materials, as well as various publicity activities to
promote the film. These costs are largely incurred and expensed prior to and during the initial theatrical release of a
feature film. As a result, we will often recognize a significant amount of expenses with respect to a particular film
before we recognize most of the revenue to be produced by that film. For films distributed by our U.S. theatrical
distribution joint venture, theatrical distribution and marketing expenses will be included in the net income (loss) of
the joint venture, and we will account for our share of such expenses (and related revenues) using the equity method
of accounting.
Marketing expenses for our Media Networks substantially consist of advertising costs for original content
on EPIX and marketing spend to promote the EPIX service. Marketing expenses may fluctuate from period to
period based on the timing and number of original content premiering on EPIX, as well as the timing of marketing
campaigns to promote EPIX and drive additional awareness. Marketing expenses are typically higher during
periods in which original content initially premieres or EPIX launches on new platforms. For marketing costs that
are contractually required to be spent on a customer’s service or platform and primarily target that customer’s
subscribers, we record such costs as contra-revenue against the revenue from the respective customer.
In addition, we typically incur fees for distribution services provided by our co-production and distribution
partners, which are expensed as incurred and included in distribution and marketing expenses. These fees are
generally variable costs that fluctuate depending on the amount of revenue generated by our film and television
content and are primarily incurred during the exploitation of our content in the theatrical and home entertainment
windows.
Distribution and marketing expenses also include marketing and other promotional costs associated with
home entertainment and television distribution, allowances for doubtful accounts receivable and realized foreign
exchange gains and losses. In addition, we consider delivery costs such as shipping prints and physical home
entertainment units to be distribution expenses and categorize such costs within distribution and marketing expenses.
General and Administrative Expenses
G&A expenses primarily include salaries and other employee-related expenses (including non-cash stock-
based compensation expense), facility costs including rent and utilities, professional fees, consulting and temporary
help, insurance premiums and travel expenses.
Foreign Currency Transactions
We earn certain revenue and incur certain operating, distribution and marketing, and G&A expenses in
currencies other than the U.S. dollar, principally the Euro and the British Pound. As a result, fluctuations in foreign
currency exchange rates can adversely affect our business, results of operations and cash flows. In certain instances,
we enter into foreign currency exchange forward contracts in order to reduce exposure to fluctuations in foreign
currency exchange rates that affect certain anticipated foreign currency cash flows. While we intend to continue to
enter into such contracts in order to mitigate our exposure to certain foreign currency exchange rate risks, it is
difficult to predict the impact that these hedging activities will have on our results of operations.
Library
We classify film and television content as library content at the beginning of the quarter of a title’s second
anniversary following its initial theatrical release or broadcast date. Library content is primarily exploited through
television licensing, including pay and free television, SVOD, TVOD and AVOD windows, as well as home
entertainment, including both physical distribution and EST. Our definition of library excludes revenue generated
by our Media Networks and ancillary businesses, such as our interactive gaming, consumer products and music
performance revenue, even though the majority of our ancillary revenue is generated from the licensing or other
exploitation of library content and the underlying intellectual property rights.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
U.S. (“GAAP”) requires us to make estimates, judgments and assumptions that affect the reported amounts and
classifications of assets and liabilities, revenue and expenses, and the related disclosures of contingent liabilities in
our financial statements and accompanying notes. We have identified the following critical accounting policies and
estimates as the ones that are most important to the portrayal of our financial condition and results of operations and
which require us to make our most subjective judgments, often as a result of the need to make estimates of matters
that are inherently uncertain. To the extent there are material differences between our estimates and actual results,
our financial condition or results of operations will be affected. We base our estimates on past experience and other
assumptions and judgments that we believe are reasonable under the circumstances, and we evaluate these estimates
on an ongoing basis. Actual results may differ significantly from these estimates under different assumptions,
judgments or conditions.
Revenue Recognition
Film and Television Content
We recognize revenue in each market once all applicable recognition requirements are met. Revenue for
film and television content is primarily comprised of the following distribution markets.
Theatrical: Revenue from theatrical distribution of film content is recognized on the dates of exhibition
and typically represents a percentage of theatrical box office receipts collected by the exhibitors.
Television licensing: Revenue from television licensing is typically recognized when the film or television
content is initially available to the licensee for telecast. Revenue from transactional video-on-demand distribution is
recognized in the period in which the sales transaction occurs. Payments received in advance of initial availability
are classified as deferred revenue until all revenue recognition requirements have been met. For scripted and
unscripted television content, we typically recognize television licensing revenue ratably upon delivery of each
episode to the licensee, even though the licensee may elect to delay the initial airing of each episode until a future
date during the license period. Television licensing revenue for unscripted content may also include executive
producer and other production services fees, as well as rankings/ratings bonuses, product integration revenue and
revenue from tape or format sales. Revenue from executive producer and other production services fees, as well as
product integration, are recognized upon delivery, and revenue for rankings/ratings bonuses and our share of tape or
format sales is typically recognized when such amounts are estimable.
Home entertainment: Revenue from physical home entertainment distribution is recognized, net of
reserves for estimated returns and doubtful accounts receivable, and together with related costs, in the period in
which the product is shipped and is available for sale to the public. Revenue from transactional electronic sell-
through distribution is recognized in the period in which the sales transaction occurs or is reported to us.
Ancillary: Ancillary revenue primarily includes the licensing of film and television content and other
intellectual property rights for use in interactive games and consumer products, as well as music revenue from the
licensing of publishing, soundtrack, master use and synchronization rights to various compositions featured in our
film and television content. Revenue from the licensing of intellectual property rights for use in interactive games
and consumer products is typically recognized ratably over the license period to the extent that the license grants the
licensee use of the underlying intellectual property during the term. Separately, we account for the licensing of the
interactive gaming, consumer products and music rights to our film and television content, as well as any profit
sharing amounts, at the beginning of the license period or when such amounts become due and are reported to us by
our licensees.
Other revenue: Other revenue primarily includes net revenue for our share of the distribution proceeds
earned by our co-production partners for co-produced film and television content for which our partners control the
distribution rights in various distribution windows, including theatrical, home entertainment, television licensing and
ancillary businesses. Net revenue from co-produced film and television content is impacted by the timing of when a
title’s cumulative aggregate revenue exceeds its cumulative aggregate distribution fees and expenses.
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Accounting for revenue and expenses from co-produced feature films and television content in accordance
with GAAP and the applicable accounting guidance is complex and requires significant judgment based on an
evaluation of the specific terms and conditions of each agreement. Co-production agreements usually stipulate
which of the partners will be responsible for exploiting the content in specified distribution windows and/or
territories. For example, one partner might distribute a feature film in the theatrical and home entertainment
windows, while the other partner might be responsible for distribution in television windows and over various digital
platforms. Generally, for each distribution window, the partner controlling the distribution rights will record
revenue and distribution expenses on a gross basis, while the other party will record its share of that window on a
net basis. In such instances, the company recording revenue on a net basis will typically recognize net revenue in
the first period in which an individual film’s cumulative aggregate revenues exceed its cumulative aggregate
distribution fees and expenses across all markets and territories controlled by its co-production partner, which may
be several quarters after the film’s initial release.
The accounting for our profit share from the distribution rights controlled by our co-production partner and
our co-production partner’s profit share from our distribution rights may differ from title to title. Typically, we
classify our projected co-production partner’s ultimate profit share from our distribution rights as P&R expense
included within operating expenses and record it over the life of the film or television content using the IFF method.
Separately, we account for our profit share from the distribution rights controlled by our co-production partner on a
net basis in one of two ways: (i) if our projected ultimate profit share is expected to result in amounts due to us from
our co-production partner, we classify this amount as revenue (net) and record it in each period in which an
individual film’s cumulative aggregate revenues exceed its cumulative aggregate distribution fees and expenses
across all markets and territories controlled by our co-production partner; or (ii) if our projected ultimate profit share
is expected to result in amounts due from us to our co-production partner, we either (a) classify this amount as a
distribution expense included within distribution and marketing expenses and recognize it as incurred to the extent
that there is a contractual true-up requirement, or (b) include this amount in our projected co-production partner’s
ultimate profit share from our distribution rights and record it as P&R expense over the life of the film or television
content using the IFF method.
Our determination of the accounting for our co-production and distribution arrangements has a significant
impact on the reported amount of our assets and liabilities, revenue and expenses, and the related disclosures.
Media Networks
Revenue for Media Networks is primarily comprised of the following:
EPIX: Revenue for EPIX is derived from affiliation agreements with U.S. MVPDs, virtual MVPDs and
OTT distribution through apps and online platforms, as well as fees associated with SVOD distribution
arrangements. Affiliate revenue from cable television and satellite operators, telecommunication companies and
online video distributors is recognized in the period during which the channel services are provided. Fees associated
with SVOD distribution are recognized upon the availability of programming to the distributor. To the extent that
we maintain an on-going performance commitment over a contractual term, revenue may be recognized as such
obligations are satisfied, or deferred until such obligations are satisfied or the term has concluded.
Other channels: We generate revenue from our wholly-owned and joint venture broadcast and cable
networks, which currently include an MGM-branded channel in the U.S., MGM HD and several multicast networks
including ThisTV, Comet TV, LightTV and Charge!. Revenue for these broadcast and cable networks is primarily
comprised of cable subscriber fees and advertising sales, which are recorded as revenue in the period during which
the channel services are provided.
Intercompany Eliminations
In the ordinary course of business, our business segments enter into various types of transactions with one
another, including, but not limited to, the licensing of content from our Film Content segment and/or our Television
Content segment to our Media Networks segment. All intercompany transactions are eliminated in consolidation.
For financial reporting purposes, intercompany licensing revenue, intercompany programming cost
amortization expense and the corresponding assets and liabilities recognized by the segments that are counterparties
42
to these transactions, are eliminated in consolidation. As such, licensing revenue that was previously recognized by
MGM on the availability date of the content licensed to EPIX is no longer recognized in our consolidated statements
of income beginning May 11, 2017. In addition, the corresponding programming cost amortization expense that was
previously recognized by EPIX over the license term for content licensed from MGM is no longer recognized in our
consolidated statements of income beginning May 11, 2017. Amortization expense related to content licensed by
MGM to EPIX prior to May 11, 2017 will be included in our consolidated statements of income but added back in
our calculation of Adjusted EBITDA (refer to Intercompany Programming Cost Amortization above for further
discussion).
Amortization of Film and Television Costs
We amortize film and television inventory costs, including production costs, capitalized interest and
overhead (if any), and fair value and purchase accounting adjustments, and we accrue P&R, using the IFF method,
as described above under Cost Structure – Operating Expenses. However, the carrying cost of any individual
feature film or television content, or film or television content library, for which an ultimate loss is projected is
immediately written down (through increased amortization expense) to its estimated fair value.
We regularly review, and revise when necessary, our ultimates for our film and television content, which
may result in a prospective increase or decrease in the rate of amortization and/or a write-down to the carrying cost
of the feature film or television content to its estimated fair value. As noted above, ultimates represent estimates of
revenue and expenses expected to be recognized over a period not to exceed ten years from the initial release or
broadcast date, or for a period not to exceed 20 years for acquired film and television libraries. We determine the
estimated fair value of our film and television content based on estimated future cash flows using the discounted
cash flow method of the income approach. Any revisions to ultimates can result in significant quarter-to-quarter and
year-to-year fluctuations in film and television cost amortization expense. Ultimates by their nature contain inherent
uncertainties since they are comprised of estimates over long periods of time, and, to a certain extent, will likely
differ from actual results.
The commercial potential of feature film or television content varies dramatically, and is not directly
correlated with the cost to produce or acquire the content. Therefore, it can be difficult to predict or project a trend
of our income or loss. However, the likelihood that we will report losses for the quarter or year in which we release
a feature film is increased by the industry’s accounting standards that require theatrical advertising and other
releasing costs to be expensed in the period in which they are incurred while revenue for the feature film is
recognized over a much longer period of time. We may report such losses even for periods in which we release
films that will ultimately be profitable for us.
Amortization of Programming Costs
Programming costs for content licensed, produced or acquired by our Media Networks are generally
amortized on a title-by-title or episode-by-episode basis over the estimated future utilization, which is based on the
number of anticipated exhibitions. In certain circumstances our Media Networks may control multiple distribution
rights or control rights to more than one distribution window. For content with multiple distribution rights, we
allocate the programming costs based on the estimated fair value of each distribution right. For content with
multiple distribution windows, we allocate the programming costs based on the estimated fair value of each
distribution window, which will generally result in the majority of the cost being allocated to the first window.
Certain other programming costs may be amortized on a straight-line basis over the respective contractual license
period.
Programming costs for original film and television content produced by MGM are allocated between pay
television (EPIX) and other distribution markets, such as digital distribution, home entertainment and international
television licensing, based on the estimated relative fair value. Programming costs allocated to the pay television
market are amortized over the estimated future utilization of each title based on the anticipated number of
exhibitions on EPIX, while programming costs associated with other distribution markets are amortized using an
ultimate model. Programming costs for original film and television content produced by MGM are included in film
and television costs in our consolidated balance sheets and related footnotes.
43
Estimates regarding the utilization of content for our Media Networks and the allocation of programming
costs between pay television and other distribution markets will require us to make judgments that involve
uncertainty. Any revisions to our estimates or ultimate revenue could result in significant quarter-to-quarter and
year-to-year fluctuations in programming cost amortization expense, and may lead to the write down (through
increased amortization expense) of programming costs to their estimated fair value.
Distribution and Marketing Costs
Exploitation costs, including advertising and marketing costs, third party distribution services fees for
various distribution activities (where applicable), distribution expenses and other releasing costs, are expensed as
incurred. As such, our results of operations, particularly for the quarter or year in which we release a feature film or
original content on EPIX, may be negatively impacted by the incurrence of the related advertising costs, which are
typically significant amounts. As discussed above under Revenue Recognition, in some instances, we account for
theatrical advertising and other distribution costs on a net basis and may not expense any portion of such costs. In
addition, from time to time, our co-production partners and distributors may advance our share of theatrical
advertising and other distribution costs on our behalf and require that distribution proceeds first go to the co-
production partner or distributor until such advanced amounts have been recouped, and we repay advanced amounts
at a later date to the extent not recouped. In the event that such advanced amounts are not recouped from
distribution proceeds, we typically remain contractually liable to our co-production partners and may repay such
amounts using cash on hand, cash flow from the exploitation of our other film and television content, and, if
necessary, funds available under our revolving credit facility.
As discussed above under Revenue Recognition, when we account for our profit share from the distribution
rights controlled by our co-production partner on a net basis: (i) if our projected ultimate profit share is expected to
result in amounts due to us from our co-production partner, we classify this amount as revenue (net) and record it as
such amounts become due and are reported to us by our co-production partner; or (ii) if our projected ultimate profit
share is expected to result in amounts due from us to our co-production partner, and there is a contractual true-up
requirement, we classify this amount as a distribution expense included within distribution and marketing expenses
and record the corresponding liability in accounts payable and accrued liabilities in our consolidated balance sheets
when incurred and reported to us by our co-production partner. Instead of a contractual true-up requirement, our co-
production partner may participate in additional distribution proceeds from the title, in which case we will include
this amount in our projected co-production partner’s ultimate profit share from our distribution rights and record it
as P&R expense over the life of the film or television content using the IFF method.
Stock-Based Compensation
We have granted restricted stock to members of our board of directors and stock options to certain
employees. Our restricted stock awards to our directors generally vest over a service period of one to three years
from the date of grant and are subject to accelerated vesting provisions in certain circumstances. Stock options are
generally granted in separate tranches, with each tranche containing a different exercise price. Each option tranche
vests over a five-year service period from the date of grant and is subject to accelerated vesting provisions in certain
circumstances.
We calculate compensation expense for awards of restricted stock and stock options using the fair value
recognition provisions of the applicable accounting standards and recognize this amount on a straight-line basis over
the requisite service period for each separately vesting portion of each award. We estimate the fair value of
restricted stock based on the market value of the underlying shares on the grant date. We estimate the fair value of
stock options using the Black-Scholes option pricing model, which requires inputs to be estimated as of each stock
option grant date, such as the expected term, expected volatility, risk-free interest rate, and expected dividend yield
and forfeiture rate. These inputs are subjective and are developed using analyses and judgment, which, if modified,
could have a significant impact on the amount of compensation expense recorded by us in our results of operations.
Specifically, we estimate the expected term for stock option awards based on the estimated time to reach
the exercise price of each tranche. The expected volatility is determined based on a study of historical and implied
volatilities of publicly traded peer companies in our industry. The risk-free interest rate is based on the yield
available to U.S. Treasury zero-coupon bonds. The expected dividend yield is based on our history of not paying
44
dividends and our expectation about changes in dividends as of the stock option grant date. Estimated forfeiture
rates were determined based on historical and expected departures for identified employees and are subject to
adjustment based on actual experience.
Refer to Note 12 to the consolidated financial statements as of June 30, 2019 for further discussion.
Income Taxes
We are subject to international and U.S. federal, state and local tax laws and regulations that affect our
business, which are extremely complex and require us to exercise significant judgment in our interpretation and
application of these laws and regulations. Accordingly, the tax positions we take are subject to change and may be
challenged by tax authorities. Our interpretation and application of applicable tax laws and regulations has a
significant impact on the reported amount of our deferred tax assets, including our federal and state net operating
loss carryforwards, and the related valuation allowances, as applicable, as well as the reported amounts of our
deferred tax liabilities and provision for income taxes. Our recognition of the tax benefits of taxable temporary
differences and net operating loss carryforwards is subject to many factors, including the existence of sufficient
taxable income in future years, and whether we believe it is more likely than not that the tax positions we have taken
will be upheld if challenged by tax authorities. Changes to our interpretation and application of applicable tax laws
and regulations could have a significant impact on our financial condition and results of operations.
Use of Non-GAAP Financial Measures
We utilize adjusted earnings before interest, taxes and depreciation and non-content amortization
(“Adjusted EBITDA”) to evaluate the operating performance of our business.
Adjusted EBITDA reflects net income attributable to MGM Holdings Inc. (inclusive of equity in net
earnings of affiliates) before interest expense, interest and other income (expense), income tax provision,
depreciation of fixed assets, amortization of non-content intangible assets and non-recurring gains and losses, and
excludes the impact of the following items: (i) Step-up Amortization Expense (refer to Cost Structure –Operating
Expenses above for further discussion), (ii) Purchase Accounting Adjustments (refer to Cost Structure –Operating
Expenses above for further discussion), (iii) Intercompany Programming Cost Amortization (refer to Cost Structure
–Operating Expenses above for further discussion), (iv) stock-based compensation expense, (v) non-recurring costs
and other expenses related to mergers, acquisitions, capital market transactions and restructurings, to the extent that
such amounts are expensed, and (vi) impairment of goodwill and other non-content intangible assets, if any.
We consider Adjusted EBITDA to be an important measure of comparative operating performance because
it excludes the impact of certain non-cash and non-recurring items that do not reflect the fundamental performance
of our business and allows investors, equity analysts and others to evaluate the impact of these items separately from
the fundamental operations of the business.
Adjusted EBITDA is a non-GAAP financial measures and should be considered in addition to, but not as a
substitute for, operating income, net income, and other measures of financial performance prepared in accordance
with GAAP. Among other limitations, Adjusted EBITDA does not reflect certain expenses that affect the operating
results of our business, as reported in accordance with GAAP, and involves judgment as to whether the excluded
items affect the fundamental operating performance of our business. In addition, our calculation of Adjusted
EBITDA may be different from the calculations used by other companies and, therefore, comparability may be
limited.
45
Results of Operations
The discussion and analysis of our results of operations set forth below are based on our consolidated
financial statements and are presented in thousands, unless otherwise stated. This information should be read in
conjunction with our consolidated financial statements and the related notes thereto contained in this report.
Overview of Financial Results
Adjusted EBITDA
(1) Step-up Amortization Expense represents incremental amortization expense resulting from non-cash fair value adjustments to the carrying value of our film and television
inventory. These fair value adjustments do not reflect a cash investment to produce or acquire content, but rather, fair value accounting adjustments recorded at the time of various
Company transactions and events. Our amortization expense is higher than it otherwise would be had we not recorded non-cash fair value adjustments to “step-up” the carrying
value of our film and television inventory costs. Refer to Cost Structure –Operating Expenses for additional information.
(2) Purchase Accounting Adjustments represent incremental amortization expense resulting from fair value accounting adjustments to the carrying value of the film and
television inventory of United Artists Media Group, Evolution and Big Fish. These adjustments result in non-operational amortization expense that will temporarily cause higher
film and television amortization expense than we would otherwise record. Refer to Cost Structure –Operating Expenses for additional information.
(3) Intercompany Programming Cost Amortization represents programming cost amortization expense related to content that MGM licensed to EPIX prior to its acquisition and
consolidation of EPIX in May 2017. Prior to the acquisition, MGM recorded film cost amortization expense related to its revenue from licensing content to EPIX. Due to the
accounting requirements for business combinations, on May 11, 2017 we recorded intercompany programming cost assets on the balance sheet of EPIX related to these same
licensed rights even though these represent intercompany assets for which amortization expense was already recorded through the income statement of MGM. As a result, these
intercompany programming cost assets will cause higher programming cost amortization expense than we would otherwise record if such licenses occurred subsequent to the
acquisition.
(4) Non-recurring costs and expenses for the six months ended June 30, 2019 primarily consisted of severance expenses. Non-recurring costs and expenses for the six months
ended June 30, 2018 primarily consisted of expenses related to the exit of our former CEO and costs associated with our strategic acquisition of Big Fish.
Change Change
2019 2018 Amount Percent 2019 2018 Amount Percent
Revenue:
Film content.............................................................................. 126,899 171,206 (44,307) (26%) 273,959 276,925 (2,966) (1%)
Television content..................................................................... 153,529 128,983 24,546 19% 207,111 184,314 22,797 12%
Media Networks....................................................................... 126,140 107,825 18,315 17% 242,602 218,307 24,295 11%
Total revenue............................................................................... 406,568 408,014 (1,446) (0%) 723,672 679,546 44,126 6%
Contribution:
Film content.............................................................................. 26,838 45,943 (19,105) (42%) 69,444 85,362 (15,918) (19%)
Television content..................................................................... 47,820 33,612 14,208 42% 66,911 55,991 10,920 20%
Media Networks....................................................................... 24,161 20,686 3,475 17% 49,879 49,581 298 1%
Total contribution......................................................................... 98,819 100,241 (1,422) (1%) 186,234 190,934 (4,700) (2%)
General and administrative......................................................... 58,024 50,744 7,280 14% 114,023 109,441 4,582 4%
Depreciation and non-content amortization.................................. 16,332 15,295 1,037 7% 32,247 29,612 2,635 9%
Operating income......................................................................... 24,463 34,202 (9,739) (28%) 39,964 51,881 (11,917) (23%)
Equity in net earnings (losses) of affiliates...................................... 1,260 2,916 (1,656) (57%) (6,842) (4,374) (2,468) (56%)
Interest expense........................................................................... (23,541) (13,318) (10,223) (77%) (45,506) (25,064) (20,442) (82%)
Interest and other income, net....................................................... 2,814 904 1,910 211% 3,665 1,808 1,857 103%
Income (loss) before income taxes................................................ 4,996 24,704 (19,708) (80%) (8,719) 24,251 (32,970) (136%)
Income tax (provision) benefit.................................................... (714) 38,433 (39,147) (102%) 874 39,744 (38,870) 98%
Net income (loss)......................................................................... 4,282 63,137 (58,855) (93%) (7,845) 63,995 (71,840) (112%)
Less: Net income (loss) attributable to noncontrolling interests...... (483) 751 (1,234) (164%) (742) 696 (1,438) (207%)
Net income (loss) attributable to MGM Holdings Inc...................... 4,765$ 62,386$ (57,621)$ (92%) (7,103)$ 63,299$ (70,402)$ (111%)
Three Months Ended
June 30,
Six Months Ended
June 30,
2019 2018 Amount Percent 2019 2018 Amount Percent
Net income (loss) attributable to MGM Holdings Inc...................... 4,765$ 62,386$ (57,621)$ (92%) (7,103)$ 63,299$ (70,402)$ (111%)
Interest expense..................................................................... 23,541 13,318 10,223 77% 45,506 25,064 20,442 82%
Interest income...................................................................... (2,089) (993) (1,096) (110%) (3,262) (1,956) (1,306) (67%)
Other expense, net................................................................. (725) 89 (814) (915%) (403) 148 (551) (372%)
Income tax provision (benefit)................................................. 714 (38,433) 39,147 102% (874) (39,744) 38,870 98%
Depreciation and non-content amortization............................... 16,332 15,295 1,037 7% 32,247 29,612 2,635 9%
EBITDA..................................................................................... 42,538 51,662 (9,124) (18%) 66,111 76,423 (10,312) (13%)
Step-up Amortization Expense (1)........................................... 10,830 12,057 (1,227) (10%) 25,102 24,855 247 1%
Purchase Accounting Adjustments (2)..................................... 2,857 4,073 (1,216) (30%) 8,126 5,147 2,979 58%
Intercompany Programming Cost Amortization (3)................... 1,865 5,958 (4,093) (69%) 3,816 13,498 (9,682) (72%)
Stock-based compensation expense......................................... 3,356 1,484 1,872 126% 7,777 5,059 2,718 54%
Non-recurring costs and expenses (4)...................................... 1,312 5,441 (4,129) (76%) 2,541 20,803 (18,262) (88%)
Adjusted EBITDA....................................................................... 62,758$ 80,675$ (17,917)$ (22%) 113,473$ 145,785$ (32,312)$ (22%)
Six Months Ended
June 30, Change
Three Months Ended
June 30, Change
46
Adjusted EBITDA versus the Three and Six Months Ended June 30, 2018
For the three months ended June 30, 2019, Adjusted EBITDA of $62.8 million was $17.9 million lower
than Adjusted EBITDA of $80.7 million for the three months ended June 30, 2018. As anticipated, lower Adjusted
EBITDA for the current year’s second quarter reflected our planned investment spending on growth initiatives. In
particular, expenses for our Media Networks segment reflect our targeted ramp in programming costs and marketing
expenses associated with original content for EPIX. In addition, overhead excluding non-recurring expenses and
stock-based compensation increased $9.5 million, consistent with our expectations and reflecting our targeted
investments in personnel to drive future revenue growth in our core film and television content businesses, as well as
to support increased distribution and original content volume for EPIX. This was partially offset by higher revenue
from EPIX due to the accelerated revenue recognition associated with the delivery of first-run films and library
content under EPIX’s digital distribution agreements, which were renewed with improved terms during the latter
part of 2018. In addition, we achieved a 39% increase in Television Content Adjusted EBITDA (pre-overhead) with
the deliveries of new scripted television content, including The Handmaid’s Tale (season 3) and Vikings (season 6),
as well as a high volume of unscripted content including The Voice (season 16), Live PD, Survivor (season 38), Beat
Shazam (season 3) and The Real Housewives of Beverly Hills (season 9), plus new shows including Are You Smarter
Than a 5th Grader for Nickelodeon, Live Rescue and Vet ER Live for A&E, and many other shows. In comparison,
Adjusted EBITDA for the prior year’s second quarter reflected the strong performance of our television content
business, including deliveries of scripted television shows, such as The Handmaid’s Tale (season 2), Condor
(season 1), Luis Miguel: La Serie (season 1) and Vikings (seasons 5 and 6), as well as our unscripted shows Survivor
(season 36), The Voice (season 14), Beat Shazam (season 2), The Real Housewives of Beverly Hills (season 8),
Botched (season 5) and Vanderpump Rules (season 6).
For the six months ended June 30, 2019, Adjusted EBITDA of $113.5 million was $32.3 million lower than
Adjusted EBITDA of $145.8 million for the six months ended June 30, 2018. As anticipated, lower Adjusted
EBITDA for the first half of 2019 reflected our planned investment spending on growth initiatives. In particular,
EPIX Adjusted EBITDA (pre-overhead) declined $5.3 million in the first half of 2019 due to the ramp in
programming costs and marketing expenses associated with original content. In addition, overhead excluding non-
recurring expenses and stock-based compensation increased $20.1 million, consistent with our expectations and
reflecting our targeted investments in personnel to drive future revenue growth in our core film and television
content businesses, as well as to support increased distribution and original content volume for EPIX. This was
partially offset by the continued strong performance of our Television Content segment which drove a 29% increase
in Adjusted EBITDA (pre-overhead) with deliveries of new scripted television content, including The Handmaid’s
Tale (season 3) and Vikings (season 6), as well as a high volume of unscripted content including Live PD, The Voice
(season 16), Survivor (season 38), The Real Housewives of Beverly Hills (season 9) and Beat Shazam (season 3),
plus new shows including Are You Smarter Than a 5th Grader for Nickelodeon, Live Rescue and Vet ER Live for
A&E, and many other shows. In comparison, Adjusted EBITDA for the first half of 2018 included deliveries of
new episodes of The Handmaid’s Tale (season 2), Condor (season 1), Luis Miguel: La Serie (season 1), Vikings
(seasons 5 and 6), as well as our unscripted shows The Voice (season 14), Survivor (season 36), Shark Tank (season
9), Beat Shazam (season 2), The Real Housewives of Beverly Hills (season 8), Botched (season 5) and Vanderpump
Rules (season 6).
47
Three Months ended June 30, 2019 Compared to the Three Months Ended June 30, 2018
Film Content
(5) Operating expenses for film content for the three month periods ended June 30, 2019 and 2018 included $9.8 million and $11.3 million, respectively, of Step-up
Amortization Expense. Refer to Cost Structure –Operating Expenses for additional information.
Film Content – Revenue
Theatrical. Worldwide theatrical revenue for film content was $5.9 million for the three months ended
June 30, 2019, a decrease of $1.1 million as compared to $7.0 million for the three months ended June 30, 2018.
Theatrical revenue for the current year’s second quarter primarily included international revenue for Child’s Play in
certain territories. We did not recognize a substantial portion of the worldwide theatrical revenue for Fighting with
My Family, The Hustle, Child’s Play or The Sun is Also a Star, which are primarily accounted for on a net basis after
deduction of theatrical advertising and other related distribution costs. In comparison, theatrical revenue for the
three months ended June 30, 2018 primarily included international revenue for Death Wish in certain territories.
Television Licensing. Worldwide television licensing revenue for film content was $77.8 million for the
three months ended June 30, 2019, a decrease of $34.0 million as compared to $111.8 million for the three months
ended June 30, 2018. Television licensing revenue for the current year’s second quarter primarily included
worldwide VOD and international SVOD revenue for Creed II, the U.S. free television availabilities for Creed and
Barbershop 3, domestic VOD revenue for Fighting With My Family, and international revenue for several recently
released titles, such as Child’s Play, Overboard, Tomb Raider and Death Wish. In comparison, television licensing
revenue for the prior year’s second quarter primarily included the domestic free television availability for Spectre,
the initial international free television availabilities for Me Before You, domestic VOD revenue for recent film
releases, including Death Wish and Tomb Raider, and higher library revenue.
Home Entertainment. Worldwide home entertainment revenue for film content was $16.4 million for the
three months ended June 30, 2019, a decrease of $20.7 million as compared to $37.1 million for the three months
ended June 30, 2018. Home entertainment revenue for the current year’s second quarter primarily included strong
EST revenue for Fighting with My Family, our ongoing worldwide distribution of our franchise film, Creed II, plus
our continued distribution of library film content. In comparison, home entertainment revenue for the prior year’s
second quarter primarily included the domestic home entertainment release of Death Wish, EST revenue for Tomb
Raider and higher revenue from library film content.
Change
2019 2018 Amount Percent
Revenue:
Theatrical.............................................................................. 5,902 7,044 (1,142) (16%)
Television licensing................................................................. 77,804 111,815 (34,011) (30%)
Home entertainment............................................................... 16,357 37,132 (20,775) (56%)
Other revenue........................................................................ 19,908 7,694 12,214 159%
Ancillary................................................................................ 6,928 7,521 (593) (8%)
Total revenue............................................................................... 126,899 171,206 (44,307) (26%)
Expenses:
Operating (5)......................................................................... 79,548 110,658 (31,110) (28%)
Distribution and marketing...................................................... 20,513 14,605 5,908 40%
Total expenses............................................................................. 100,061 125,263 (25,202) (20%)
Contribution................................................................................. 26,838$ 45,943$ (19,105)$ (42%)
Step-up Amortization Expense (5)........................................... 9,765 11,327 (1,562) (14%)
Adjusted EBITDA (pre-G&A)................................................. 36,603$ 57,270$ (20,667)$ (36%)
Three Months Ended
June 30,
48
Other Revenue. Other revenue for film content was $19.9 million for the three months ended June 30,
2019, an increase of $12.2 million, or 159%, as compared to $7.7 million for the three months ended June 30, 2018.
Net revenue from co-produced films in the current year’s second quarter was primarily comprised of ongoing net
revenue from the successful performance of A Star is Born, plus continued strong net revenue from Tomb Raider
and Creed II, as well as the initial net revenue recognition for The Hustle. In comparison, net revenue from co-
produced films in the prior year’s second quarter was comprised of the initial net revenue recognition for Tomb
Raider.
Ancillary. Ancillary revenue for film content, which includes consumer products, interactive gaming,
music performance and other revenue, was $6.9 million for the three months ended June 30, 2019, a decrease of
$0.6 million as compared to $7.5 million for the three months ended June 30, 2018. The decrease primarily
reflected the early timing of music performance revenue in the prior year’s second quarter.
Film Content – Expenses
Operating Expenses. Operating expenses for film content were $79.5 million for the three months ended
June 30, 2019, a decrease of $31.2 million as compared to $110.7 million for the three months ended June 30, 2018.
The decrease in operating expenses included $34.4 million of lower aggregate film cost and P&R amortization
expenses. Aggregate amortization expenses for the current year’s second quarter primarily included Creed II,
Child’s Play, Tomb Raider, Creed, The Hustle and Overboard. In comparison, aggregate amortization expenses for
the prior year’s second quarter primarily included Death Wish, Spectre, Tomb Raider, Creed and library content.
Distribution and Marketing Expenses. Distribution and marketing expenses for film content were
$20.5 million for the three months ended June 30, 2019, an increase of $5.9 million as compared to $14.6 million for
the three months ended June 30, 2018. The increase was driven by higher theatrical marketing expenses, primarily
our share of the theatrical marketing costs for The Sun is Also a Star, which was released in partnership with Warner
Bros. Pictures in May 2019. Marketing expenses associated with theatrical films released through our U.S.
theatrical distribution joint venture, United Artists Releasing, are accounted for on an equity method basis and
included in equity in net earnings (losses) of affiliates. The increase in marketing expenses was partially offset by
foreign currency losses of $9.2 million recorded in the prior year’s second quarter.
49
Television Content
(6) Operating expenses for television content for the three months ended June 30, 2019 included $2.9 million of Purchase Accounting Adjustments and $1.1 million
of Step-up Amortization Expense. Operating expenses for television content for the three months ended June 30, 2018 included $4.1 million of Purchase Accounting
Adjustments and $0.7 million of Step-up Amortization Expense. Refer to Cost Structure –Operating Expenses for additional information.
Television Content – Revenue
Television Licensing. Television licensing revenue for television content was $148.5 million for the three
months ended June 30, 2019, an increase of $28.0 million, or 23%, as compared to $120.5 million for the three
months ended June 30, 2018. Revenue for the current year’s second quarter primarily reflected the strong
performance of our premium scripted television content, including deliveries of new episodes of The Handmaid’s
Tale (season 3) to Hulu and Vikings (season 6) to History. In addition, we continue to deliver a high volume of
unscripted content including Are You Smarter Than a 5th Grader, The Voice (season 16), Live PD, Survivor
(season 38), Live Rescue (season 1), Beat Shazam (season 3), The Real Housewives of Beverly Hills (season 9) and
many other shows. In comparison, the prior year’s second quarter primarily included deliveries of scripted
television content including The Handmaid’s Tale (season 2), Condor (season 1) and Luis Miguel: La Serie
(season 1).
Home Entertainment and Other. Home entertainment and other revenue for television content was
$5.0 million for the three months ended June 30, 2019, a decrease of $3.5 million as compared to $8.5 million for
the three months ended June 30, 2018. This decrease was primarily driven by lower home entertainment revenue for
Vikings and The Handmaid’s Tale, in part due to the later EST release of The Handmaid’s Tale (season 3), which is
anticipated in the third quarter of 2019. In comparison, EST distribution for The Handmaid’s Tale (season 2) began
in the prior year’s second quarter.
Television Content – Expenses
Operating Expenses. Operating expenses for television content were $102.6 million for the three months
ended June 30, 2019, an increase of $11.9 million as compared to $90.7 million for the three months ended June 30,
2018. The increase in operating expenses was primarily due to higher aggregate television content cost and P&R
amortization expenses driven by more deliveries of scripted content and the delivery of Are You Smarter Than a 5th
Grader during the current year’s second quarter. In addition, operating expenses increased as a result of the accrual
of contractual earnout obligations related to recent acquisitions. As a reminder, we do not record amortization
expense for unscripted content that is recorded on a net basis.
Distribution and Marketing Expenses. Distribution and marketing expenses for television content were
$3.1 million and $4.6 million for the three month periods ended June 30, 2019 and 2018, respectively.
Change
2019 2018 Amount Percent
Revenue:
Television licensing................................................................. 148,521 120,485 28,036 23%
Home entertainment and other................................................ 5,008 8,498 (3,490) (41%)
Total revenue............................................................................... 153,529 128,983 24,546 19%
Expenses:
Operating (6)......................................................................... 102,620 90,743 11,877 13%
Distribution and marketing...................................................... 3,089 4,628 (1,539) (33%)
Total expenses............................................................................. 105,709 95,371 10,338 11%
Contribution................................................................................. 47,820$ 33,612$ 14,208$ 42%
Purchase Accounting Adjustments (6)..................................... 2,857 4,073 (1,216) (30%)
Step-up Amortization Expense (6)........................................... 1,065 730 335 46%
Net loss attributable to noncontrolling interests......................... 483 (751) 1,234 164%
Adjusted EBITDA (pre-G&A)................................................. 52,225$ 37,664$ 14,561$ 39%
Three Months Ended
June 30,
50
Media Networks
(7) Operating expenses for Media Networks for the three months ended June 30, 2019 included $1.9 million of Intercompany Programming Cost Amortization.
Operating expenses for Media Networks for the three months ended June 30, 2018 included $6.0 million of Intercompany Programming Cost Amortization. Refer to
Cost Structure –Operating Expenses for additional information.
Media Networks – Revenue
Total revenue from our Media Networks segment, which includes EPIX and our other wholly-owned and
joint venture broadcast and cable networks, was $126.1 million for the three months ended June 30, 2019, an
increase of $18.3 million as compared to $107.8 million for the three months ended June 30, 2018. This increase
reflected higher revenue from EPIX due to the accelerated revenue recognition associated with the delivery of first-
run films and library content under EPIX’s digital distribution agreements, which were renewed with improved
terms during the latter part of 2018.
Media Networks – Expenses
Operating Expenses. Operating expenses for our Media Networks were $79.9 million for the three
months ended June 30, 2019, an increase of $7.0 million as compared to $72.9 million for the three months ended
June 30, 2018. This increase primarily reflected higher programming cost amortization expenses related to EPIX’s
prior original content, including Get Shorty (seasons 1 and 2), Berlin Station (season 3) and The Contender
(season 1), plus the new original series, Perpetual Grace, LTD, as well as first-run theatrical films from Paramount
and Lionsgate, including A Quiet Place, Book Club, The Spy Who Dumped Me, and Wonder, among many other
films.
Distribution and Marketing Expenses. Distribution and marketing expenses for our Media Networks
were $22.0 million for the three months ended June 30, 2019, an increase of $7.8 million as compared to
$14.2 million for the three months ended June 30, 2018. This increase primarily reflected higher marketing costs
associated with EPIX’s new original content, primarily the new original series, Perpetual Grace, LTD, and the
upcoming series, Pennyworth.
General and Administrative Expenses
For the three months ended June 30, 2019, total G&A expenses were $58.0 million, an increase of
$7.3 million as compared to $50.7 million for the three months ended June 30, 2018. Non-recurring expenses
declined $4.1 million from the prior year’s second quarter, which primarily included the final costs related to the
exit of our former CEO and costs associated with our strategic acquisition of Big Fish. Excluding non-recurring
expenses and stock-based compensation, G&A expenses increased $9.5 million in the current year’s second quarter,
which was consistent with our expectations. This increase primarily reflected our targeted investments in personnel
to drive future revenue growth in our film and television content businesses, as well as to support increased
distribution and original content volume for EPIX. In addition, the current year’s second quarter included G&A
expenses related to our prior mid-year acquisition of Big Fish, which we began consolidating in June 2018.
Change
2019 2018 Amount Percent
Revenue
EPIX..................................................................................... 118,855 97,159 21,696 22%
Other Channels...................................................................... 7,285 10,666 (3,381) (32%)
Total revenue............................................................................... 126,140 107,825 18,315 17%
Expenses:
Operating (7)......................................................................... 79,940 72,941 6,999 10%
Distribution and marketing...................................................... 22,039 14,198 7,841 55%
Total expenses............................................................................. 101,979 87,139 14,840 17%
Contribution................................................................................. 24,161$ 20,686$ 3,475$ 17%
Intercompany Programming Cost Amortization (7)................... 1,865 5,958 (4,093) (69%)
Adjusted EBITDA (pre-G&A)................................................. 26,026$ 26,644$ (618)$ (2% )
Three Months Ended
June 30,
51
Depreciation and non-content amortization
For the three months ended June 30, 2019, depreciation and non-content amortization was $16.3 million, an
increase of $1.0 million as compared to $15.3 million for the three months ended June 30, 2018. Amortization
expense for identifiable non-content intangible assets with definite lives, which is recorded on a straight-line basis
over the estimated useful lives, totaled $12.8 million and $12.7 million for the three month periods ended June 30,
2019 and 2018, respectively. Depreciation expense for fixed assets was $3.5 million and $2.6 million for the three
month periods ended June 30, 2019 and 2018, respectively.
Equity in net earnings of affiliates
For the three months ended June 30, 2019, equity in net earnings of affiliates was $1.3 million. Equity in
net earnings for the current year’s second quarter was primarily comprised of a gain related to a non-equity method
investment plus dividend income received from another non-equity method investment, which were partially offset
by our share of the net loss of our U.S. theatrical distribution joint venture. For the three months ended June 30,
2018, equity in net earnings of affiliates was $2.9 million and was comprised of our share of the net earnings of our
U.S. theatrical distribution joint venture, plus dividend income from a non-equity method investment.
Interest expense
Interest expense is primarily comprised of contractual interest incurred under our $1.8 billion revolving
credit facility, $400.0 million first lien term loan and $400.0 million second lien term loan, as well as our prior
$850.0 million senior secured term loan (repaid in July 2018), and the amortization of related deferred financing
costs (refer to Liquidity and Capital Resources –Bank Borrowings for further discussion).
For the three months ended June 30, 2019, total interest expense was $23.5 million, an increase of
$10.2 million as compared to $13.3 million for the three months ended June 30, 2018. For the current year’s second
quarter, interest expense included $21.4 million of contractual interest and $2.1 million of other interest costs. For
the prior year’s second quarter, interest expense included $12.3 million of contractual interest and $1.0 million of
other interest costs. Cash paid for interest was $21.5 million and $12.7 million for the three month periods ended
June 30, 2019 and 2018, respectively. Our higher interest expense and cash paid for interest in the current year’s
second quarter primarily reflected interest associated with our $400.0 million first lien term loan and $400.0 million
second lien term loan, plus higher borrowings under our revolving credit facility to fund our investment spending on
strategic growth initiatives, including our ramp in content investment, plus prior year stock repurchases and our
prior mid-year acquisition of Big Fish.
Interest income
Interest income primarily includes the amortization of discounts recorded on long-term accounts and
contracts receivable, as well as interest earned on short-term investments. For the three month periods ended
June 30, 2019 and 2018, the amounts recorded as interest income were immaterial.
Other income (expense), net
For the three month periods ended June 30, 2019 and 2018, the amounts recorded as other income were
immaterial.
Income tax (provision) benefit
For the three months ended June 30, 2019, we recorded an income tax provision of $0.7 million. Based
solely on our U.S. federal and state statutory income tax rates, our effective tax rate was 23%. For the three months
ended June 30, 2018, we recorded an income tax benefit of $38.4 million. Our income tax benefit for the prior
year’s second quarter included a non-recurring benefit associated with the exercise of stock options. In addition, our
cash paid for income taxes continues to benefit from significant deferred tax assets, primarily net operating loss
carryforwards and foreign tax credits.
52
Six Months Ended June 30, 2019 Compared to the Six Months Ended June 30, 2018
Film Content
(8) Operating expenses for film content for the six month periods ended June 30, 2019 and 2018 included $21.3 million and $23.5 million, respectively, of Step-up
Amortization Expense. Refer to Cost Structure –Operating Expenses for additional information.
Film Content – Revenue
Theatrical. Worldwide theatrical revenue for film content was $14.7 million for the six months ended
June 30, 2019, a decrease of $1.0 million as compared to $15.7 million for the six months ended June 30, 2018.
Theatrical revenue for the first half of 2019 primarily included U.S. theatrical revenue from the release of the Orion
Pictures’ film, The Prodigy, in February 2019, plus international revenue for Child’s Play in certain territories. We
did not recognize a substantial portion of the worldwide theatrical revenue for Fighting with My Family, The Hustle,
Child’s Play or The Sun is Also a Star, which are primarily accounted for on a net basis after deduction of theatrical
advertising and other related distribution costs. In comparison, theatrical revenue for the first half of 2018 primarily
included international revenue for Death Wish and Sherlock Gnomes in certain territories and U.S. theatrical revenue
for the Orion Picture’s film, Every Day.
Television Licensing. Worldwide television licensing revenue for film content was $153.3 million for the
six months ended June 30, 2019, a decrease of $25.6 million as compared to $178.9 million for the six months ended
June 30, 2018. Television licensing revenue for the first half of 2019 primarily included worldwide VOD and
international SVOD revenue for Creed II, the U.S. free television availabilities for Creed and Barbershop 3,
worldwide free television availabilities for The Magnificent Seven and first cycle television windows for several
other recently released films, including Sherlock Gnomes, Tomb Raider, Overboard and Death Wish. In
comparison, television licensing revenue for the first half of 2018 primarily included the domestic free television
availability for Spectre, the initial international free television availabilities for Me Before You, and domestic VOD
revenue for 2018 film releases, including Death Wish and Tomb Raider, as well as ongoing licensing revenue for
previous film releases and library content.
Home Entertainment. Worldwide home entertainment revenue for film content was $44.4 million for the
six months ended June 30, 2019, a decrease of $11.9 million as compared to $56.3 million for the six months ended
June 30, 2018. Home entertainment revenue for the first half of 2019 primarily included strong EST revenue and
the ongoing worldwide physical distribution of our franchise film, Creed II, EST revenue for Fighting With My
Family, plus our continued distribution of library film content. In comparison, home entertainment revenue for the
first half of 2018 primarily included the domestic home entertainment release of Death Wish, EST revenue for Tomb
Raider and our continued distribution of library content.
Other Revenue. Other revenue for film content was $35.4 million for the six months ended June 30, 2019,
an increase of $24.5 million, or 225%, as compared to $10.9 million for the six months ended June 30, 2018. Net
Change
2019 2018 Amount Percent
Revenue:
Theatrical.............................................................................. 14,722 15,704 (982) (6%)
Television licensing................................................................. 153,297 178,860 (25,563) (14%)
Home entertainment............................................................... 44,446 56,280 (11,834) (21%)
Other revenue........................................................................ 35,401 10,896 24,505 225%
Ancillary................................................................................ 26,093 15,185 10,908 72%
Total revenue............................................................................... 273,959 276,925 (2,966) (1%)
Expenses:
Operating (8)......................................................................... 169,751 172,013 (2,262) (1%)
Distribution and marketing...................................................... 34,764 19,550 15,214 78%
Total expenses............................................................................. 204,515 191,563 12,952 7%
Contribution................................................................................. 69,444$ 85,362$ (15,918)$ (19%)
Step-up Amortization Expense (8)........................................... 21,263 23,509 (2,246) (10%)
Adjusted EBITDA (pre-G&A)................................................. 90,707$ 108,871$ (18,164)$ (17%)
Six Months Ended
June 30,
53
revenue from co-produced films in the first half of 2019 was primarily comprised of net revenue from our franchise
film, Creed II, plus ongoing net revenue from the successful performance of A Star is Born. In comparison, net
revenue from co-produced films in the first half of 2018 was primarily comprised of the initial net revenue
recognition for Tomb Raider.
Ancillary. Ancillary revenue for film content, which includes consumer products, interactive gaming,
music performance and other revenue, was $26.1 million for the six months ended June 30, 2019, an increase of
$10.9 million as compared to $15.2 million for the six months ended June 30, 2018. The increase primarily
reflected upfront revenue recognition related to a new, long-term music licensing agreement.
Film Content – Expenses
Operating Expenses. Operating expenses for film content were $169.8 million for the six months ended
June 30, 2019, a decrease of $2.2 million as compared to $172.0 million for the six months ended June 30, 2018.
The decrease in operating expenses was largely due to lower aggregate film cost and P&R amortization expenses.
Aggregate amortization expenses for the first half of 2019 primarily included Creed II, Child’s Play, Tomb Raider,
Fighting With My Family, The Magnificent Seven and library content, plus $6.1 million of unanticipated film
impairment charges. In comparison, aggregate amortization expenses for the first half of 2018 primarily included
Death Wish, Spectre, Tomb Raider, Creed, Me Before You and library content, plus $6.7 million of unanticipated
film impairment charges.
Distribution and Marketing Expenses. Distribution and marketing expenses for film content were
$34.8 million for the six months ended June 30, 2019, an increase of $15.2 million as compared to $19.6 million for
the six months ended June 30, 2018. The increase was driven by higher theatrical marketing expenses, primarily our
share of the theatrical marketing costs for The Sun is Also a Star, which was released in partnership with Warner
Bros. Pictures in May 2019, plus U.S. marketing expenses for the Orion Pictures’ film, The Prodigy. Marketing
expenses associated with theatrical films released through our U.S. theatrical distribution joint venture, United
Artists Releasing, are accounted for on an equity method basis and included in equity in net earnings (losses) of
affiliates. The increase in marketing expenses was partially offset by foreign currency losses of $4.9 million
recorded in the first half of 2018.
54
Television Content
(9) Operating expenses for television content for the six months ended June 30, 2019 included $8.1 million of Purchase Accounting Adjustments and $3.8 million
of Step-up Amortization Expense. Operating expenses for television content for the six months ended June 30, 2018 included $5.1 million of Purchase Accounting
Adjustments and $1.3 million of Step-up Amortization Expense. Refer to Cost Structure –Operating Expenses for additional information.
Television Content – Revenue
Television Licensing. Television licensing revenue for television content was $193.7 million for the six
months ended June 30, 2019, an increase of $28.4 million as compared to $165.3 million for the six months ended
June 30, 2018. Revenue for the first half of 2019 primarily reflected the strong performance of our premium
scripted television content, including deliveries of new episodes of The Handmaid’s Tale (season 3) to Hulu and
Vikings (season 6) to History, as well as our continued licensing of prior seasons of these series and our other
successful scripted television content. In addition, we continue to deliver a high volume of unscripted content
including Live PD, The Voice (season 16), Survivor (season 38), Are You Smarter Than a 5th Grader, The Real
Housewives of Beverly Hills (season 9), Live Rescue (season 1), Beat Shazam (season 3), Shark Tank (season 10),
Vanderpump Rules (season 7) and many other shows. In comparison, the first half of 2018 primarily included
deliveries of new episodes of scripted series, including The Handmaid’s Tale (season 2), Condor (season 1), Luis
Miguel: La Serie (season 1), as well as several unscripted shows, including The Voice (season 14), Survivor
(season 36), Beat Shazam (season 2), The Real Housewives of Beverly Hills (season 8), Botched (season 5) and
Vanderpump Rules (season 6).
Home Entertainment and Other. Home entertainment and other revenue for television content was
$13.4 million for the six months ended June 30, 2019, a decrease of $5.6 million as compared to $19.0 million for
the six months ended June 30, 2018. Home entertainment revenue for each period was primarily driven by the
international home entertainment release of a new season of Vikings in each period, plus the continued strong EST
performance of The Handmaid’s Tale (seasons 1 and 2). The decrease in the first half of 2019 was due in part to the
later EST release of The Handmaid’s Tale (season 3), which is anticipated in the third quarter of 2019. In
comparison, EST distribution for The Handmaid’s Tale (season 2) began in the prior year’s second quarter.
Television Content – Expenses
Operating Expenses. Operating expenses for television content were $134.4 million for the six months
ended June 30, 2019, an increase of $13.1 million as compared to $121.3 million for the six months ended June 30,
2018. The increase in operating expenses was primarily due to the accrual of contractual earnout obligations related
to recent acquisitions, plus higher aggregate television content cost and P&R amortization expenses driven by more
deliveries of scripted content and the delivery of Are You Smarter Than a 5th Grader during the first half of 2019.
As a reminder, we do not record amortization expense for unscripted content that is recorded on a net basis.
Distribution and Marketing Expenses. Distribution and marketing expenses for television content were
$5.8 million and $7.1 million for the six month periods ended June 30, 2019 and 2018, respectively.
Change
2019 2018 Amount Percent
Revenue:
Television licensing................................................................. 193,684 165,334 28,350 17%
Home entertainment and other................................................ 13,427 18,980 (5,553) (29%)
Total revenue............................................................................... 207,111 184,314 22,797 12%
Expenses:
Operating (9)......................................................................... 134,394 121,273 13,121 11%
Distribution and marketing...................................................... 5,806 7,050 (1,244) (18%)
Total expenses............................................................................. 140,200 128,323 11,877 9%
Contribution................................................................................. 66,911$ 55,991$ 10,920$ 20%
Purchase Accounting Adjustments (9)..................................... 8,126 5,147 2,979 58%
Step-up Amortization Expense (9)........................................... 3,839 1,346 2,493 185%
Net loss attributable to noncontrolling interests......................... 742 (696) 1,438 207%
Adjusted EBITDA (pre-G&A)................................................. 79,618$ 61,788$ 17,830$ 29%
Six Months Ended
June 30,
55
Media Networks
(10) Operating expenses for Media Networks for the six months ended June 30, 2019 included $3.8 million of Intercompany Programming Cost Amortization.
Operating expenses for Media Networks for the six months ended June 30, 2018 included $13.5 million of Intercompany Programming Cost Amortization. Refer to
Cost Structure –Operating Expenses for additional information.
Media Networks – Revenue
Total revenue from our Media Networks segment, which includes EPIX and our other wholly-owned and
joint venture broadcast and cable networks, was $242.6 million for the six months ended June 30, 2019, an increase
of $24.3 million as compared to $218.3 million for the six months ended June 30, 2018. This increase reflected
higher revenue from EPIX due to the accelerated revenue recognition associated with the delivery of first-run films
and library content under EPIX’s digital distribution agreements, which were renewed with improved terms during
the latter part of 2018.
Media Networks – Expenses
Operating Expenses. Operating expenses for our Media Networks were $163.5 million for the six months
ended June 30, 2019, an increase of $13.7 million as compared to $149.8 million for the six months ended June 30,
2018. This increase primarily reflected higher programming cost amortization expenses related to EPIX’s prior
original content, including Get Shorty (seasons 1 and 2), Berlin Station (season 3) and The Contender (season 1),
plus the new original series, Perpetual Grace, LTD, as well as first-run theatrical films from Paramount and
Lionsgate, including A Quiet Place, Book Club, I Can Only Imagine, Sherlock Gnomes, Acrimony and Annihilation,
among many other films.
Distribution and Marketing Expenses. Distribution and marketing expenses for our Media Networks
segment were $29.2 million for the six months ended June 30, 2019, an increase of $10.3 million as compared to
$18.9 million for the six months ended June 30, 2018. This increase primarily reflected higher marketing costs
associated with EPIX’s new original content, primarily the new original series, Perpetual Grace, LTD, and the
unscripted shows Punk and Elvis Goes There, as well as the initial marketing expenses for our upcoming premium
scripted series, Pennyworth and Godfather of Harlem.
General and Administrative Expenses
For the six months ended June 30, 2019, total G&A expenses were $114.0 million, an increase of
$4.6 million as compared to $109.4 million for the six months ended June 30, 2018. Non-recurring expenses
declined $18.3 million from the first half of 2018, which primarily included expenses related to the exit of our
former CEO and costs associated with our strategic acquisition of Big Fish. Excluding non-recurring expenses and
stock-based compensation, G&A expenses increased $20.1 million for the first half of 2019, which was consistent
with our expectations. This increase primarily reflected our targeted investments in personnel to drive future
revenue growth in our film and television content businesses, as well as to support increased distribution and
original content volume for EPIX. In addition, the first half of 2019 included G&A expenses related to our prior
mid-year acquisition of Big Fish, which we began consolidating in June 2018.
Change
2019 2018 Amount Percent
Revenue
EPIX..................................................................................... 225,002 196,889 28,113 14%
Other Channels...................................................................... 17,600 21,418 (3,818) (18%)
Total revenue............................................................................... 242,602 218,307 24,295 11%
Expenses:
Operating (10)....................................................................... 163,528 149,777 13,751 9%
Distribution and marketing...................................................... 29,195 18,949 10,246 54%
Total expenses............................................................................. 192,723 168,726 23,997 14%
Contribution................................................................................. 49,879$ 49,581$ 298$ 1%
Intercompany Programming Cost Amortization (10)................. 3,816 13,498 (9,682) (72%)
Adjusted EBITDA (pre-G&A)................................................. 53,695$ 63,079$ (9,384)$ (15% )
Six Months Ended
June 30,
56
Depreciation and non-content amortization
For the six months ended June 30, 2019, depreciation and non-content amortization was $32.2 million, an
increase of $2.6 million as compared to $29.6 million for the six months ended June 30, 2018. Amortization
expense for identifiable non-content intangible assets with definite lives, which is recorded on a straight-line basis
over the estimated useful lives, totaled $25.6 million and $24.9 million for the six month periods ended June 30,
2019 and 2018, respectively. The increase primarily reflected our recognition of new, amortizable non-content
intangible assets resulting from our acquisition of Big Fish in June 2018. Depreciation expense for fixed assets was
$6.6 million and $4.7 million for the six month periods ended June 30, 2019 and 2018, respectively.
Equity in net losses of affiliates
For the six months ended June 30, 2019, equity in net losses of affiliates was $6.8 million and was
primarily comprised of our share of the net loss of our U.S. theatrical distribution joint venture, which was partially
offset by a gain related to a non-equity method investment and dividend income from another non-equity method
investment. For the six months ended June 30, 2018, equity in net losses of affiliates was $4.4 million and was
primarily comprised of our share of the net loss of our U.S. theatrical distribution joint venture, plus dividend
income from a non-equity method investment.
Interest expense
Interest expense is primarily comprised of contractual interest incurred under our $1.8 billion revolving
credit facility, $400.0 million first lien term loan and $400.0 million second lien term loan, as well as our prior
$850.0 million senior secured term loan (repaid in July 2018), and the amortization of related deferred financing
costs (refer to Liquidity and Capital Resources –Bank Borrowings for further discussion).
For the six months ended June 30, 2019, total interest expense was $45.5 million, an increase of
$20.4 million as compared to $25.1 million for the six months ended June 30, 2018. For the first half of 2019,
interest expense included $41.8 million of contractual interest and $3.7 million of other interest costs. For the first
half of 2018, interest expense included $23.1 million of contractual interest and $2.0 million of other interest costs.
Cash paid for interest was $41.5 million and $23.4 million for the six month periods ended June 30, 2019 and 2018,
respectively. Our higher interest expense and cash paid for interest in the first half of 2019 primarily reflected
interest associated with our $400.0 million first lien term loan and $400.0 million second lien term loan, plus higher
borrowings under our revolving credit facility to fund our investment spending on strategic growth initiatives,
including our ramp in content investment.
Interest income
Interest income primarily includes the amortization of discounts recorded on long-term accounts and
contracts receivable, as well as interest earned on short-term investments. For the six month periods ended June 30,
2019 and 2018, the amounts recorded as interest income were immaterial.
Other income (expense), net
For the six month periods ended June 30, 2019 and 2018, the amounts recorded as other income were
immaterial.
Income tax benefit
For the six months ended June 30, 2019, we recorded an income tax benefit of $0.9 million. Based solely
on our U.S. federal and state statutory income tax rates, our effective tax rate was 23%. For the six months ended
June 30, 2018, we recorded an income tax benefit of $39.7 million, which primarily reflected a non-recurring benefit
associated with the exercise of stock options. Excluding this non-recurring benefit, our income tax provision for the
first half of 2018 was $4.5 million, which represented an effective tax rate of 19%. In addition, our cash paid for
income taxes continues to benefit from significant deferred tax assets, primarily net operating loss carryforwards and
foreign tax credits.
57
Liquidity and Capital Resources
General
Our operations are capital intensive. In recent years we have funded our operations primarily with cash
flow from operating activities, bank borrowings, and through co-production arrangements. In 2019 and beyond, we
expect to fund our operations with (a) cash flow from the exploitation of our film and television content, (b) cash on
hand, (c) co-production arrangements, and (d) funds available under our revolving credit facility.
Bank Borrowings
In July 2018, we entered into a seven-year $400.0 million first lien term loan (the “1L Term Loan”) and an
eight-year $400.0 million second lien term loan (the “2L Term Loan”). The 1L Term Loan was issued at a discount
of 50 basis points, bears interest at 2.50% over LIBOR and matures on July 3, 2025. The 2L Term Loan was issued
at a discount of 100 basis points, bears interest at 4.50% over LIBOR and matures on July 3, 2026. Proceeds from
the issuance of these terms loans were primarily used to prepay our prior $850.0 million senior secured term loan.
In addition, we amended our senior secured revolving credit facility (the “Revolving Credit Facility”) to, among
other things, increase the total commitments, lower the interest rate and modify certain covenants and components
of our borrowing base. Our Revolving Credit Facility currently has $1.8 billion of total commitments, bears interest
at 1.75% over LIBOR and matures on July 3, 2023. The availability of funds under the Revolving Credit Facility is
limited by a borrowing base calculation. At June 30, 2019, we had $815.0 million drawn against the Revolving
Credit Facility and there were no outstanding letters of credit. The $985.0 million of remaining funds were entirely
available to us.
The Revolving Credit Facility, 1L Term Loan and 2L Term Loan contain various affirmative and negative
covenants and financial tests, including, as applicable, limitations on our ability to make certain expenditures, incur
indebtedness, grant liens, dispose of property, merge, consolidate or undertake other fundamental changes, pay
dividends and make distributions, make certain investments, enter into certain transactions, and pursue new lines of
business outside of entertainment and/or media-related business activities. We were in compliance with all
applicable covenants and there were no events of default at June 30, 2019.
Cash Provided By (Used In) Operating Activities
Cash used in operating activities was $73.2 million for the six months ended June 30, 2019, and cash
provided by operating activities was $87.2 million for the six months ended June 30, 2018. The change in operating
cash flow primarily reflected $136.8 million of higher net cash investment in content during the first half of 2019,
which included the initial production costs for Bond 25 and investments in our premium scripted series, The
Handmaid’s Tale (season 3), Perpetual Grace, LTD (season 1) and Four Weddings and a Funeral (season 1), plus
additional programming for EPIX. In addition, cash flow from operating activities reflected higher marketing costs
for The Prodigy and EPIX, and increased G&A costs, as discussed above.
Cash Used In Investing Activities
Cash used in investing activities was $18.2 million and $52.0 million for the six month periods ended
June 30, 2019 and 2018, respectively. Cash used in investing activities for the first half of 2019 was comprised of
capital expenditures on infrastructure and capital contributions to our U.S. theatrical distribution joint venture. Cash
used in investing activities for the first half of 2018 primarily included $39.6 million of net cash paid for our
acquisition of Big Fish ($65.0 million of cash paid net of $25.4 million of cash acquired), plus capital expenditures
mainly related to new information systems and capital contributions to our U.S. theatrical distribution joint venture.
Cash Provided By (Used In) Financing Activities
Cash provided by financing activities was $120.6 million for the six months ended June 30, 2019. This
primarily included $130.0 million of net borrowings under our Revolving Credit Facility to finance our strategic
investment spending on growth initiatives, including our planned increased content production activities. For the six
months ended June 30, 2018, cash used in financing activities was $4.4 million and primarily included
$346.6 million of aggregate repurchases of our Class A common stock and $10.6 million of repayments of our prior
58
$850.0 million senior secured term loan. This was largely offset by $350.0 million of net borrowings under our
Revolving Credit Facility to finance our investment spending on growth initiatives, stock repurchases and our
strategic acquisition of Big Fish.
Commitments
Future minimum commitments under corporate debt agreements, creative talent and employment
agreements, non-cancelable operating leases net of subleasing income, and other contractual obligations at June 30,
2019, were as follows (in thousands):
(1) Corporate debt does not include interest costs.
(2) Program rights include contractual commitments under programming license agreements related to film and television content that is not
available for exhibition until a future date.
(3) Creative talent and employment agreements include obligations to producers, directors, writers, actors and executives, as well as other creative
costs involved in producing film and television content. (4) Other contractual obligations primarily include contractual commitments related to our acquisition of film and distribution rights. Future payments under these commitments are based on anticipated delivery or availability dates of the related film or contractual due dates of the
commitment.
As discussed above under Liquidity and Capital Resources –Bank Borrowings, we have a $1.8 billion
Revolving Credit Facility. At June 30, 2019, we had $815.0 million drawn against the Revolving Credit Facility and
there were no outstanding letters of credit. The $985.0 million of remaining funds were entirely available to us. Our
future capital expenditure commitments are not significant.
Six Months
Ended
December 31, Year Ended December 31,
2019 2020 2021 2022 2023 Thereafter Total
Corporate debt (1) ............................................ $ 2,000 $ 4,000 $ 4,000 $ 4,000 $ 819,000 $ 779,000 $ 1,612,000
Program rights (2)............................................. 100,184 69,510 13,665 2,252 - - 185,611
Creative talent and employment agreements (3)... 92,283 50,706 29,048 14,898 - - 186,935
Operating leases ............................................... 9,563 19,925 29,099 9,931 4,067 11,091 83,676
Other contractual obligations (4)......................... 38,434 11,601 4,324 3,016 43 - 57,418
$ 242,464 $ 155,742 $ 80,136 $ 34,097 $ 823,110 $ 790,091 $ 2,125,640